RE YUEN MUN WA

HCB 6350/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 6350 OF 2011

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J U D G M E N T

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Introduction

1. There is before this court a bankruptcy petition presented by Bank of China (Hong Kong) Ltd (“the Bank”) against Ms Yuen Mun Wa (“Ms Yuen”). According to the petition, Ms Yuen is indebted to the Bank in the sum of HK$4,076,175.75 together with interest of HK$2,127,828.30 which continues to accrue (“the Debt”).  The Debt arose from an unlimited guarantee dated 26 May 1999 (“the Guarantee”) executed by, inter alia, Ms Yuen in favour of Po Sang Bank Ltd (“Po Sang Bank”) by which she guaranteed the indebtedness of Loong Fung Construction Supplies & Trading Co Ltd (“the Company”).  The Bank is the successor corporation to Po Sang Bank as a result of the merger effected by the Bank of China (Hong Kong) Limited (Merger) Ordinance, Cap 1167. 

2. A statutory demand in respect of the Debt was served on Ms Yuen on 24 June 2011, but it has not been complied with.  There is no proposal by Ms Yuen to repay, secure or compound for the Debt. 

3. Ms Yuen disputes her liability over the Debt.  She maintains that she did not sign the Guarantee.  This is the only issue to be decided. 

The applicable law

4. There is no disagreement between the parties as to the following legal principles:

(a)   The court will not make a bankruptcy order against an alleged debtor if he or she can show, with sufficient precise evidence, that there is a bona fide dispute in relation to the debt on which the petition is based – see Re Tam Mei Kam, HCB 3777/2011, unrep, 25 April 2011, para. 7;

(b)   Where there is a real dispute turning to a substantial extent on disputed questions of fact which require viva voce evidence, such dispute cannot properly be decided on petition – In re Lympne Investments Ltd [1972] 1 WLR 523 at 527D–F.

5. The parties however are unable to agree on the threshold for the applicable test of bona fide dispute.  Mr Kwong, who appeared for Ms Yuen, argued that the same threshold which a defendant has to meet in respect of a summary judgment application under O.14 should be applied.  Ms Cheung, who appeared for the Bank, argued for a higher standard. 

6. Ms Cheung has urged me to adopt the same approach as in Periwin Development Ltd v Grandfield Pacific Hotel Ltd, HCCW 29/2001, unrep, at para. 11:

“ In an application for summary judgment, the defendant must show that he has a fair probability of establishing a bona fide defence to obtain leave to defend. To resist a petition, the company must show that it has a bona fide defence, not a fair probability of one. It is possible that a company might on an Order 14 application convince the court that it has a fair probability of a defence but at the petition stage it might not be able to establish it has a bona fide defence. The court must come to a conclusion in the winding-up petition whether there is or is not a bona fide defence. ‘The court does not dismiss a petition on the basis that a company might be able at some stage in the future to scrape together a case that might be arguable.’ If the court should refuse leave to defend in an application for summary judgment, that would be the end of the matter. But if a winding-up order is made, the company’s claim against the petitioner may still be pursued by the liquidator as he thinks proper, so there is no injustice in adopting a higher threshold for the company requiring it to show that it has a bona fide defence, quite apart from the public policy considerations in a winding-up (see Re ICS Computer Distribution Ltd, supra. at 443G-444A and HCCW No. 615 of 1995, p.5).”

Although this was a company winding-up case, there is no disagreement that the dicta can be applied to a bankruptcy petition. 

7. On the other hand, I have been referred by Mr Kwong to two fairly recent English decisions.  Firstly, Markham v Karsten [2007] EWHC 1509 (Ch), at paras. 44 and 45 (Lexis Transcript):

“[44] In my judgment therefore, there is a genuine triable issue as to the existence of a case of undue influence in relation to the Trust Deed, and the learned Registrar was wrong to reach a contrary conclusion. In so saying, I am far from suggesting that an affirmative outcome to that issue is probable. It may well be that it is improbable. Numerous decisions under the closely analogous CPR Pt 24 show that summary judgment rejecting a defence is not appropriate merely because the defence is improbable. Probabilities are properly a matter for trial.

[45] I see no reason to conclude that the test for the existence of a genuine triable issue in relation to the defence to a bankruptcy petition should be more stringent than that applied to a defence under Pt 24.  I consider that as a matter of analysis that two tests must be broadly equivalent.  Just as there is no reason to dismiss a petition and require a Claimant to commence proceedings in which he is likely to obtain summary judgment, so there is no reason to make a bankruptcy order where, had the petitioner proceeded by ordinary proceedings the Respondent / Defendant would have obtained permission to defend (even if only upon conditions, due to his defence being regarded as shadowy).”

8. Secondly, Ross v Commissioners for HM Revenue and Customs [2010] EWHC 13 (Ch), at para. 66 (Lexis Transcript):

“… it is well established that the court will dismiss a petition if there is a genuine triable issue as to the existence of the petition debt: see Muir Hunter on Personal Insolvency, paragraph 3-414, and Markham v Karsten [2007] EWHC 1509 (Ch), [2007] BPIR 1109.  According to Briggs J in Markham v Karsten, the test for the existence of a genuine triable issue in relation to the defence to a bankruptcy petition should be no more stringent than that applied to an application for summary judgment under CPR Part 24, and the two tests are broadly equivalent: see paragraph 45 of his judgment.”

9. It appears therefore there is a divergence between Hong Kong and England as to the applicable threshold which a debtor has to satisfy in the face of a bankruptcy petition. With respect, I find it difficult to fault the analysis of Briggs J in Markham v Karsten, supra.  In simple terms, there is no compelling reason why a petitioner who relies on a disputed debt (a petition based on a judgment debt may be seen to be in a different category) should be in a better position than a plaintiff who applied for a summary judgment.  The adverse impact which a bankruptcy order has on the respondent supports the argument that the same summary judgment threshold should be applied.

10. On the other hand, it appears that the test adumbrated in Periwin Development Ltd v Grandfield Pacific Hotel Ltd, supra, is well established in Hong Kong – see Butterworths HK Bankruptcy Law Handbook, 4^th edn., p. 47.

11. Further, the test of bona fide dispute involves different consideration in respect of the evidence. In order to satisfy that test, sufficient precise evidence is required from the debtor.  By comparison, for the purpose of making out a triable issue to resist a summary judgment application, a defendant is required to “condescend upon particulars” in his evidence (see Hong Kong Civil Procedure 2012, vol. 1, para. 14/4/4).  The difference may not be huge but a debtor has a higher burden nevertheless. 

12. For these reasons, I am inclined to apply the threshold set out in Periwin Development.  I have been told by both counsel that there is no Hong Kong Court of Appeal decision on the point.  This is certainly a matter where a definitive decision by the higher court would be welcomed. 

Ms Yuen’s case

13. According to the evidence put before this court by Ms Yuen, she is 46 years old and of modest background.  After completing school (Form 5), she has been working in a factory in Kwun Tong and is currently a production coordinator.  In about “1998-1999”, she was asked to join as a director of the Company which was owned and run by her cousin, Ms Yu.  Ms Yuen was told that her cousin was applying to emigrate to Canada and “in order to sweeten her emigration application, her Company needed to have 3 directors”. She was also told that the position would have no adverse financial implication for her.  The two ladies were very close and Ms Yuen was keen to help her cousin. 

14. Ms Yuen had nothing to do with the management of the Company (she eventually resigned as a director of the Company with effect from 23 August 2002).  She was only a director in name but from time to time documents were given to her by the Company’s staff for her signature.  She was told that those papers concerned matters of formality. 

15. Ms Yuen is adamant that she has not seen the Guarantee before a copy of it was obtained from the Bank’s solicitors (there is a letter dated 5 July 2011 from the Bank’s solicitors to Ms Yuen’s solicitors enclosing a copy of the Guarantee in Exhibits Bundle, p. 189).  She also maintains that she has never met Mr Li Lai Wah (“Mr Li”), an employee of Po Sang Bank who witnessed her signing of the Guarantee.  Furthermore, Ms Yuen says that she could not have gone to Po Sang Bank’s branch office in Sheung Wan to sign the Guarantee on 26 May 1999 because she would have to take leave from work for the purpose, and she has produced her leave record to show that she did not do so on that day.  She says that had she been asked to sign any type of guarantee, she would have refused to do so. 

Analysis

16. I regret to say that Ms Yuen’s case does not sit well with the undisputed documentary evidence.  There are a few glaring discrepancies which are disturbing.  Firstly, Ms Yuen said that she had no interest in the Company but the company records show that she was a 50% shareholder from day one and certainly continued to be so until at least 4 March 2002 (date of the 2002 Annual Return). 

17. Secondly, there are documents which show the granting of facilities to the Company by Po Sang Bank, that the Company was previously in default in repaying its debts to Po Sang Bank and certain debts were restructured.  Importantly, it appears from the documents that Ms Yuen had some knowledge of these matters.  In particular, there is a facilities letter dated 28 December 2000 on which Ms Yuen had signed.  It was stated in Chinese above the location where Ms Yuen’s signature appeared as follows:“由擔保人 / 按揭人 / 抵押品提供者確認及加簽：”.  This tends to suggest that Ms Yuen was aware of the fact that she was guaranteeing the debts of the Company. 

18. Thirdly, the page of the Guarantee on which Ms Yuen had signed contained various Chinese words.  In particular, Part B of the First Schedule under which Ms Yuen’s name, address and identity card number appeared contained the words“擔保人”.  Further, immediately above her signature were the words“由擔保人(等)簽署、蓋章及交付：”.  Such evidence flatly contradicts Ms Yuen’s case that she did not sign any guarantee. 

19. There is another feature which I find unusual and tends to discredit Ms Yuen’s case.  She has failed in her evidence to say whether or not the signature attributed to her which appeared on the Guarantee is genuine or not.  It must be the most natural thing for a person to assert if his signature has been forged.

20. For these reasons, I do not find that Ms Yuen has discharged her duty to demonstrate a bona fide dispute to the Debt. 

21. For completeness, I should mention a few more points.  Firstly, I accept that Ms Yuen had little or no participation in the management of the Company.  However, that is no answer to the liability in question. 

22. Secondly, I am unable to agree with Mr Kwong’s suggestion that this court should only concern itself with the evidence in respect of the signing of the Guarantee.  In my view, the other undisputed evidence is helpful to the court in assessing or testing the veracity of Ms Yuen’s case.

23. Thirdly, Mr Li’s evidence is that due to the passage of time, quite understandably, he can no longer recall what took place on the day when the Guarantee was signed.  However, he has provided detailed evidence as to his usual practice adopted at the time in dealing with the signing of such a document.  I view such evidence with a healthy degree of scepticism. Experience and common sense dictate that perfection is rarely achieved in practice. 

24. Fourthly, as regards Ms Yuen’s assertion that it was impossible for her to attend Sheung Wan on 26 May 1999 (based on the evidence that she did not take leave from her work), I must balance such allegation against the rest of the evidence and common sense.  It appears to me that it was quite possible for Ms Yuen to have taken the MTR to make the trip during an extended lunch break.  In any case, I do not see that the assertion and the evidence on which it is based outweigh the undisputed documentary evidence. 

Conclusion

25. Notwithstanding my considerable sympathy for Ms Yuen, I grant the usual bankruptcy order with costs against her for the reasons I have given above.