KAM HUNG CHEUNG v. BANK OF CHINA (HONG KONG) LTD

[English Translation - 英譯本]

CACV 40/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

 CIVIL APPEAL NO. 40 OF 2008

(ON APPEAL FROM HCB NO. 8808 OF 2004)

_______________

BETWEEN

_______________

_______________

J U D G M E N T

_______________

Hon Cheung JA (giving the judgment of the Court):

1. On 1 December 2004, the Court of First Instance made a bankruptcy order against the Debtor herein.  On 25 April 2007, the Debtor took out a summons applying for the annulment of the order.  The application was dismissed by Chu J, and the Debtor now appeals against that decision.

Background

2. The Creditor is a bank.  The Po Sang Bank (“Po Sang”), the Creditor’s predecessor, granted loan facility to a company known as Seaquest International Development Limited (“Seaquest”), of which the Debtor, one Madam Chan Pui Hung (“Madam Chan”) and one Mr. Li Wo Kam (“Mr. Li”) were shareholders and directors.  The Debtor and Madam Chan were the first directors of Seaquest, whereas Mr. Li subsequently joined the company as shareholder and director.  On 14 June 2002, Mr. Li transferred his shareholding to Madam Chan and ceased to be a director of Seaquest.    

3. On 8 October 1996, the Debtor, Madam Chan and Mr. Li executed, in the capacity as guarantors, a deed of unlimited guarantee (“Deed of Guarantee”) in favour of Po Sang.  The Deed of Guarantee provided that the three guarantors jointly and severally undertook to pay to Po Sang upon demand in writing all sums of money owed by Seaquest to Po Sang.  The guarantors’ liability under the Deed of Guarantee was unlimited.

4. According to a Letter of Grant of Banking Facilities dated 5 October 1999 (“Letter of Facilities” or “Letter”), Po Sang provided to Seaquest a term loan up to HK$4,396,643.58, with 25 February 2000 as the date of maturity.  The Letter of Facilities stipulated that the Debtor, Madam Chan and Mr. Li had to jointly and severally guarantee to pay off Seaquest’s indebtedness to Po Sang, with no limit to be imposed on the amount of repayment.  The Letter also stated that a Chinese version of the Letter was attached thereto for reference.  Seaquest, as borrower and debtor, and Madam Chan and Mr. Li, as guarantors, signed at the end of the Letter of Facilities.  Seaquest’s signature was accompanied by a declaration in these terms: “Having properly and carefully considered the contents of this Letter, I/we agree to accept the Letter of Grant of Banking Facilities and to be bound by all the terms and conditions set out herein”, whereas the following words were printed next to the guarantors’ signatures: “Hereby acknowledged and signed by the Guarantors”.

5. Pursuant to the Letter of Facilities, Po Sang granted a loan to Seaquest, who, however, failed to repay the loan as agreed.  Nor did the three guarantors pay off Seaquest’s indebtedness pursuant to the Deed of Guarantee or Letter of Facilities upon demand by the Creditor in writing.

6. On 28 April 2003, the Creditor commenced proceedings in the High Court (HCA 1497/2003) against Seaquest, the Debtor, Madam Chan and Mr. Li.

7. As none of the defendants (including the Debtor) gave Notice of Intention to Defend, on 20 June 2003 the court entered judgment for the Creditor and ordered the four defendants to pay the Creditor $2,457,900.27 together with interest on the principal of $2,101,212.29 and costs.

8. As the Debtor failed to satisfy the judgment, on 14 July 2003 the Creditor issued a statutory demand against him.

9. The Debtor failed to make any response to the statutory demand.  Accordingly, on 6 September 2004 the Creditor presented the bankruptcy petition in the present case, and the court made the relevant bankruptcy order on 1 December 2004.

Annulment of bankruptcy order

10. The Debtor applied for annulment of the bankruptcy order pursuant to section 33(1)(a) of the Bankruptcy Ordinance (Cap.6 of the Laws of Hong Kong), which provides as follows:

(1) The court may annul a bankruptcy order if it at any time appears to the court that ―

(a) on any grounds existing at the time the order was made, the order ought not to have been made; or …  

Legal principles

11. In paragraphs 22 to 26 of her judgment, Chu J elucidated the legal principles pertaining to an application for annulment.  Neither party has taken issue with those principles, which we will respectfully adopt:

22. The relevant decided cases show that, in considering whether to exercise the power under section 33(1)(a), the court should first look at whether there were any grounds on which a bankruptcy order ought not to have been made at the material time when it was made.  If the court does not think that such grounds existed, it cannot invoke section 33(1)(a) to annul the bankruptcy order.  If the court thinks that such grounds existed, it still has to consider whether it should exercise its discretion to annul the bankruptcy order: see Society of Lloyds v. Waters [2001] BPIR 698, 704G-H, and also Artman v. Artman [1996] BPIR 511, 513-514, and Askew v. Peter Dominic Ltd [1997] BPIR 163, 164.

23. In exercising the discretion under section 33(1), the court has to carefully consider the interests of the creditor, the debtor and the public, bearing in mind that a bankruptcy order is to be annulled only under exceptional circumstances.

24. Furthermore, the person applying to annual a bankruptcy order bears the burden of proving that when the order was made there were grounds on which the order ought not to have been made: see OBE Insurance (Hong Kong) Ltd v. Chan Wai Man William, HCB 187/2000.           

25. And if a debtor disputes the debt on which a bankruptcy order is based, he must adduce cogent prima facie evidence to show that the dispute is supported by genuine and cogent reasons.  Where the debt which forms the basis of a bankruptcy order is a judgment debt, the court will normally not reconsider any dispute on the debt: see paragraph 24 of the judgment in Re Kwong Ngai Ping, HCB 9447/2003.

26. In addition, where a bankruptcy order was made in the absence of the debtor, or where the underlying judgment in favour of the creditor was obtained by reason of the debtor’s failure to give Notice of Intention to Defend, then the debtor must provide reasonable and credible explanations for his absence or failure to give Notice of Intention to Defend: Re Luk Tsun Yin [2000] 1 HKC 774, 777, and Re Ng Chi Wo, HCB 2819/2003.

Service of writ of summons

12. The present bankruptcy petition was presented pursuant to the judgment dated 20 June 2003 in HCA 1497/2003.  The most important ground put forward by the Debtor in support of his application for annulment of the bankruptcy order was that he was out of town when the Creditor served the writ of summons in relation to HCA 1497/2003 on him.

13. The solicitors for the Creditor served the writ of summons on the Debtor pursuant to Order 10 Rule 1(2) of the Rules of the High Court (Cap. 4A of the Laws of Hong Kong).  However, the Rule makes it clear that the specified mode of service applies only to a defendant within the jurisdiction.  In Deng Minghui（鄧明輝）trading as Tianye Industrial (Hong Kong) Company（田野實業（香港）公司）v. Chau Shuk Ling Elaine（周淑玲）[2007] 1 HKLRD 905, the Court of Appeal reiterated the basic requirement that the defendant must be within the jurisdiction.  In that case, the Court of Appeal did not accept the proposition that even if the defendant was out of jurisdiction, the court could still rule that the service was lawful as long as he had knowledge of the relevant proceedings.

14. In his affirmation dated 25 April 2007, the Debtor deposed that “I was out of the territory on a long-term basis, and I have never received any legal document in respect of the bankruptcy petition presented against me by the bank.”

15. By another affirmation, namely the affirmation dated 10 August 2007, the Debtor reiterated:

I have not had any address in Hong Kong since a long time ago, and I am out of the territory on a long-term basis, and hence I cannot possibly have received any letter.  8/F, No.87 Wing Lok Street is where Li Wo Kam’s current company is situated, but it has had nothing to do with me since a long time ago.

16. In HCA 1497/2003, the solicitors for the Creditor sent the amended writ of summons by registered post to the following two addresses:

(1) Room 712, Nam Fung Tower (formerly known as Wing Shan Tower), 173 Des Voeux Road Central, Hong Kong (“Des Voeux Road Central address”); and

(2) 8/F, Teda Building, 87 Wing Lok Street, Sheung Wan, Hong Kong (“Wing Lok Street address”).

17. Apart from that, the solicitors also inserted the documents into the letterbox of Block F, 5/F, Panorama Gardens, 103 Robinson Road, Hong Kong (“Robinson Road address”).

18. Between 1993 and 1999, Seaquest had its registered address at the Des Voeux Road Central address.  According to the annual returns submitted by Seaquest for the period between 1999 and 11 May 2003, Seaquest had been using the Wing Lok Street address as its registered address.  Furthermore, in the annual returns for the period between 1998 and 2003, both the Debtor and Madam Chan declared the Robinson Road address to be their address.  The Debtor had this to say in his second affirmation:

In late 2003, due to business needs, I applied to the Hang Seng Bank in Shanghai to open an account, but the application was unexpectedly refused.  Only by then did I come to know that the Bank of China had already presented a bankruptcy petition against me in Hong Kong.  I found this incomprehensible, and so in 2004 I came back to Hong Kong after the Chinese New Year and sought an explanation from the Bank of China.  At that time, Cheng Kwok Leung, on behalf of the bank, merely provided me with two English documents signed by me before 1996 and refused to give me any detailed explanation.

19. Although the Debtor deposed in the same affirmation that he was informed of the bankruptcy order back in 2003 or 2004, he explained in another affirmation (i.e. the affirmation dated 19 March 2008) that that statement was a typo and that he was informed of the order only in 2006 or 2007.  It was only after Chu J delivered her judgment that the Debtor filed the affirmation dated 19 March 2008, and he did so for the purpose of opposing the Creditor’s application for an order requiring him to provide security for costs of the appeal.

20. In respect of his being out of town at the relevant time, the evidence adduced by the Debtor before Chu J included a photocopy of the passport held by him and a statement of the Debtor’s travel records issued by the Immigration Department of Hong Kong on 17 May 2007, which showed no record of the Debtor entering or leaving Hong Kong between 23 May 2003 (i.e. the date on which the solicitors for the Creditor served the amended writ of summons) and 28 June 2003 (i.e. the month in which the Creditor obtained judgment).  It was pursuant to the request by the solicitors for the Creditor on 10 May 2007 that the Debtor provided the relevant travel records.

21. Ms. Koo, Counsel for the Debtor in the present appeal (the Debtor acted in person in the proceedings before Chu J), said that she was unable to compile a complete travel record of the Debtor by reference to the photocopy of his passport.

22. Moreover, before Chu J, there was a report issued by the Official Receiver dated 4 July 2007 which contained a travel record of the Debtor which the Official Receiver had obtained from the Immigration Department:

(1) The Debtor left Hong Kong on 20 August 2004.

(2) He returned to Hong Kong on 14 October 2004 but left Hong Kong again on the same day.

(3) The Debtor returned to Hong Kong on 13 March 2007.

23. Chu J said that there was no evidence in the affirmation filed in the present application to support the Debtor’s allegation that he was out of the territory on a long-term basis.

24. In our judgment, except the affirmations of the Debtor himself, the relevant travel records do not lend support to his claim that he was out of the territory on a long-term basis during the relevant period.

New evidence

25. In the present appeal, Ms. Koo urged us to accept new evidence on the Debtor’s absence from Hong Kong, namely a statement of his travel records issued by the Immigration Department dated 14 August 2008.  The statement shows that the Debtor had multiple travel records between September 2000 and May 2001.  He left Hong Kong on 19 May 2001 and did not come back until 30 October 2003.  He left Hong Kong again on 31 October 2003 and did not come back until June 2004.  The other details of the travel records accord with the Debtor’s travel periods as mentioned in the report provided by the Official Receiver.

26. Both parties have agreed that, in order to be admissible as evidence before us, the new evidence must satisfy the requirements laid down in Ladd v. Marshall, the most important one being that the evidence could not have been obtained by the appellant with reasonable diligence for use at trial.

27. In the present case, the Debtor’s travel records obviously do not meet the aforesaid condition because they could easily have been obtained.  As the new evidence does not satisfy the requirements set out in Ladd v. Marshall, the judgment made by Chu J is correct.

28. In any event, even if the Debtor was out of the territory and had no knowledge of the service of the writ of summons on him, we still have to consider other factors in determining whether we should exercise our discretion to annul the bankruptcy order.  We will deal with this issue below.

Service of statutory demand

29. The solicitors for the Creditor sent staff members to the Wing Lok Street address, Des Vouex Road Central address and Robinson Road address on many occasions but still failed to serve the statutory demand on the Debtor.  The Creditor was subsequently granted leave by the court to publish a notice in the newspaper on 3 January 2004 informing the Debtor that the Creditor had issued the statutory demand.

Service of bankruptcy petition

30. The solicitors for the Creditor also sent staff members to the aforesaid three addresses on many occasions for the purpose of serving the bankruptcy petition, but they were unable to serve the petition on the Debtor personally.  The Creditor was subsequently granted leave by the court to serve the petition on the Debtor by means of substituted service, and pursuant to the court order, the Creditor mailed the petition to the aforesaid three addresses and published a notice in the local newspaper.

31. Rule 46(2) of the Bankruptcy Rules (Cap. 6A of the Laws of Hong Kong) requires a creditor to do all that is reasonable and practicable for the purpose of bringing the statutory demand to the debtor’s attention.  The publication of a notice in the newspaper is a method of substituted service recognized by the law, and Ms. Koo has conceded that this method of substituted service does not require the Debtor to be present in Hong Kong.

32. We do not accept the Debtor’s submission that the Creditor could have inquired of Madam Chan or Mr. Li about where he was.  The Debtor, being a guarantor, did not inform the bank of his change of address.  He allowed Seaquest to continue to use, in the annual returns, the Robinson Road address which he had all along been using.  Furthermore, those who worked at the Wing Lok Street address told the solicitors for the Creditor that the Debtor also worked there.  In light of all this, we conclude that the bankruptcy documents had been served on the Debtor in accordance with the law.

Exercise of discretion

33. The Debtor claimed that he had no idea whatsoever of the contents of the document which he signed at Po Sang.  He also claimed that Seaquest had told him that all the outstanding debts had been repaid.  He had this to say in his second affirmation:

I know nothing about English and of course do not know the contents of any document in English.  The two documents provided by the bank, on which my signatures appear, are matters before 1996.  I simply do not remember why my signatures were left with the bank.  However, it would have been impossible to obtain loan facility on the basis of these two documents bearing my signatures.  But [they] have now become something the bank relied on in seeking to make me bankrupt.  In order to have the matter clarified, I repeatedly requested the solicitor and the bank to provide me with materials in Chinese.  However, my requests were turned down. 

At the third court hearing on 16 July of this year, the Judge asked me to file a new affirmation.  I again requested the bank to provide me with the affirmation relating to the bankruptcy petition presented against me in 2004 and all the materials relating to my case, but I stressed that the documents must all be in Chinese.  The solicitor for the bank said in court that this could be done and also asked me to collect the documents on the afternoon of 6 August of this year, but in the end, they still refused to provide [the documents].  All I obtained is a new affirmation filed by the bank with the court on 1 August of this year.

34. The Debtor signed on two documents, namely the Deed of Guarantee and the Letter of Facilities.  His present claim that he did not remember why he left his signatures with Po Sang is plainly not a reasonable defence.

35. It appears from Chu J’s judgment that the Debtor claimed at the hearing that he signed the documents only upon the requests of the other shareholders and directors.  As Chu J has pointed out, if the Debtor indeed had no idea of the contents of the documents but did not take any reasonable step to find out their contents and nature, then it was negligent of him to sign the documents.  As a matter of law, it was not for him to say that he was not bound by the Deed of Guarantee and Letter of Facilities and hence not liable under those documents because he had no knowledge of the contents of those documents.  We entirely agree with Chu J’s views on the matter.

36. Furthermore, in her judgment, Chu J addressed the issue concerning the debt owed by Seaquest and the subsequent repayment:

28. A statement of indebtedness of Seaquest has been attached to the affirmation of Cheng Kwok Leung, filed on behalf of the Petitioner.  The statement shows that as at 20 June 2003, Seaquest owed the bank principal, interest and costs in a total sum of $2,522,336.23.  The statement further shows that on 19 July 2004, Mr. Li as guarantor repaid to the bank a sum of $1,075,758.46.  Therefore, when the bankruptcy order was made (i.e. on 1 December 2004), the debt owed by Seaquest was $1,728,345.95.  Subsequently, on 31 December 2004 Mr. Li made a second repayment in the same amount of $1,075,758.46.  Then, on 14 January 2005, Madam Chan also repaid to the bank a sum of $350,000.  As at 31 May 2007, Seaquest was still indebted to the bank for the sum of $330,641.49.

29. According to Clause 5 of the Letter of Banking Facilities and Clause 5(6) of the Deed of Guarantee signed by the Debtor, a certificate produced by an officer of the bank as to Seaquest’s indebtedness is irrebuttable proof of such indebtedness and is binding on Seaquest and the three guarantors including the Debtor.  Therefore, as far as the debt owed by Seaquest to the bank is concerned, the abovementioned statement constitutes irrebuttable proof which is binding on the Debtor.  This being the case, the Debtor can neither dispute nor deny the fact that Seaquest has not repaid the loan to the bank.  Furthermore, the Debtor has never adduced any concrete evidence to show that Seaquest is not indebted to the bank.

37. As the English Court of Appeal pointed out in Owo-Samson v. Barclays Bank Plc [2003] BPIR 1371, Askew v. Peter Dominic [1997] BPIR 163 and Artman v. Artman [1996] BPIR 511, the question for the court is: even if the bankruptcy order is annulled, will the debtor be declared bankrupt again?  If in the court’s view there is evidence showing that this is unavoidable, the court may exercise its discretion to refuse to annul the bankruptcy order.

38. The Creditor in the present case had adduced prima facie evidence to show that it had granted a loan to Seaquest and that the loan had not been fully repaid.

39. Ms. Koo submitted that, despite inaccuracies in the statement of Seaquest’s indebtedness produced by the Creditor, Chu J erroneously ruled that the statement was binding and was irrebuttable proof, thereby depriving the Debtor of the opportunity to dispute the issue of whether he was still indebted to the Creditor.  Ms. Koo said that both the proof of debt prepared by the Creditor on 11 September 2006 and the Official Receiver’s report dated 23 May 2007 showed that the Debtor was still indebted to the Creditor for $1,728,345.95, but the Creditor deposed in its affirmation dated 1 August 2007 that as at 11 November 2005 the Debtor was indebted to the Creditor for merely $330,641.49.  Ms. Koo posed the following question: if the Debtor had only been indebted to the Creditor for such a small amount, why did it say in the proof of debt dated 11 September 2006 that the Debtor was still indebted for $1,728,345.95? 

40. The proof of debt submitted to the Official Receiver by the Creditor stated that the amount owed by the Debtor as at the date of the bankruptcy order (i.e. 1 December 2004) was $1,728,345.95.  The Creditor referred to the date of the bankruptcy order in compliance with Form 46A of the Bankruptcy Rules, Rule 109 of which stipulates that a creditor shall prove his debt by means of that form.  As stated above, since that date Mr. Li and Madam Chan had respectively satisfied part of the debt, and therefore the Creditor claimed that as at 31 May 2007 the Debtor was still indebted for $330,641.49.  To date, the Debtor has not put forward any ground for challenging this figure or putting the accuracy of this figure in doubt. 

41. As the Debtor had failed to put forward any reasonable ground for denying his liability to repay the debt to the Creditor, it was proper for Chu J to exercise her discretion to refuse to annul the bankruptcy order.

Conclusion

42. The Debtor’s appeal is dismissed with costs.