RE DAI GUOLIANG

HCB 2343/2018

[2019] HKCFI 597

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 2343 OF 2018

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J U D G M E N T

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Introduction

1.  There is before me an amended Bankruptcy Petition (“the Petition”) presented on 26 April 2018 by Sino Pacific Global Multi-Strategy Fund (“the Petitioner”).

2.  The debtor (“D”) is one Dai Guoliang.

3.  The debt relied upon by the Petitioner is based on a guarantee dated 20 February 2017 executed by D in its favour (“the Guarantee”).  Thedebt in question is slightly in excess of HK$10,000,000 together with interest.

4.  It was stated in paragraph 3 of the Petition that:

“ The Debtor is domiciled in Hong Kong, has within 3 years immediately preceding the presentation of this Petition ordinarily resided in Hong Kong, had a place of residence in Hong Kong, carried on business within Hong Kong, and/or he was personally present in Hong Kong on the day the petition is presented.”

5.  In short, all of the possible jurisdictional gateways are relied upon.

6.  Section 4 of the Bankruptcy Ordinance (Cap 6) provides that:

“ (1) A bankruptcy petition shall not be presented to the court under section 3(1)(a) or (b) unless the debtor—

(a) is domiciled in Hong Kong;

(b) is personally present in Hong Kong on the day on which the petition is presented; or

(c) at any time in the period of 3 years ending with that day—

(i) has been ordinarily resident, or has had a place of residence, in Hong Kong; or

(iii) has carried on business in Hong Kong.

(2) The reference in subsection (1)(c) to a debtor carrying on business includes—

(a) the carrying on of business by a firm or partnership of which the debtor is a member; and

(b) the carrying on of business by an agent or manager for the debtor or for such a firm or partnership.”

7.  These can be referred to as the Domicile Gateway, the OrdinaryResidence Gateway, the Place of Residence Gateway, the Business Gateway (collectively “the Other Gateways”) and the Personal Presence Gateway.

8.  The underlying debt was owed by one Centron Telecom International Holding Limited (“Listco”) to which I will come back later.

9.  D opposes the Petition on jurisdictional grounds only ie that none of the jurisdictional gateways have been established by the Petitioner save for the Personal Presence Gateway and that the Court should as a matter of discretion “dismiss or stay the petition, by reason of the Debtor’s lack of sufficient connection with Hong Kong”.

10.  D therefore says that: (1) the Petitioner cannot establish any of the Other Gateways and (2) while he accepts the Petitioner can establish the Personal Presence Gateway, the Court should not exercise its discretion in the Petitioner’s favour.

11.  It follows that if I conclude on the evidence before me, that the Petitioner has satisfied the Court that it should exercise its discretion in the Petitioner’s favour when considering the Personal Presence Gateway, a bankruptcy order should follow and I would not need to consider the Other Gateways.

Relevant facts

12.  There is very little if at all any dispute on the relevant facts, which for this purpose, relate to the jurisdictional gateways only.

13.  D says he is domiciled and resident in the Fujian Province and therefore there is insufficient connection to the jurisdiction to justify him being caught by the Court’s bankruptcy jurisdiction.

14.  I will not set out all of those facts here but note that:

(1)  Listco is a company incorporated in the Cayman Islands but listed on the Hong Kong Stock Exchange.

(2)  Listco has an office in Hong Kong and D would sometimes work there, for example when he was served with the Petition.

(3)  Until April 2018, D was a substantial shareholder (indirectly) of Listco of whom he had been chairman, and an executive director from 26 April 2015 until April 2018.

(4)  By reason of his office, D would have come to Hong Kong at least on some occasions for e.g. general meetings of Listco held in Hong Kong.

15.  In terms of how often, for how long and where he stays in Hong Kong:

(1)  In his 2^ndaffirmation D explains he visited Hong Kong in 2016 for 8 times, and only on 4 of those visits was an over-night visit involved, in 2017 there were 12 visits and he was in Hong Kong for about 45 nights. In 2018, he was in Hong Kong for over 170 nights.  He explains that starting from October 2017 he had to come to Hong Kong more often to deal with the restructuring of Listco, in view of its financial difficulties, and meet with various professionals based here.

(2)  D explains that in fact he spent most of his time in Fujian, where the actual operations of Listco are located.  He also seeks to highlight the fact that some of the board of directors meetings of Listco were held in the mainland by identifying such minutes for the period March 2014 – March 2017.

(3)  D stayed either at hotels or at a de facto staff quarters in North Point which was rented by an affiliate of Listco.

(4)  D is the holder of a Hong Kong Identity Card as recorded in the Guarantee.

16.  I should point out that the Guarantee provided for:

(1)  “Choice of Law:  in any proceeding taken in relation to this Guarantee the choice of Hong Kong law as the governing law of this Guarantee and any judgment obtained in Hong Kong would be recognized and enforced.”  (Clause 5.1m)

(2)  “Notices.  Delivery.  Each notice, demand, or other communications to be given under this Guarantee shall be in writing and delivered or sent to …. the Guarantor at [Listco’s offices in Wanchai].”  (Clause 17.1)

(3)  The governing law and jurisdiction clause provided for the laws of Hong Kong and further stated that “[D] agrees that for the benefit of the [Petitioner] any legal action or proceeding arising out of or relating to this Guarantee may be brought in the courts of Hong Kong and irrevocably submits to the exclusive jurisdiction of such courts.”  (Clause 18) (my emphasis)

Analysis on Personal Presence Gateway

17.  There is no dispute that D was present in Hong Kong when the Petition was presented.  That being the case,does a bankruptcy order automatically follow?

18.  Mr Nicholas Oh for the Petitioner in his skeleton submissions submitted that “once the Court has determined that it has jurisdiction over the Debtor (a matter which is not discretionary, the Court either has or does not have jurisdiction over the Debtor), the Debtor’s degree of connection with Hong Kong simply does not feature in the exercise of the Court’s discretion as to whether to grant a bankruptcy order … or not”.  At the hearinghe refined his approach and emphasized that while the Court had a discretion whether to make an order or not, it should not adopt by analogy the law on winding up of overseas companies (see section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (“the Companies Ordinance”).

19.  Mr Justin Lam for the debtor in a persuasive submission sought to highlight the discretionary nature of the Court’s jurisdiction.  He prayed in aid the observations of the learned authors of Cross-Border Insolvency (4^thed) on the subject.  I note that at paragraph 8.8, the learned authors recognized that “when the court will exercise its discretion to stay proceedings is plainly dependent upon the facts of any given case”.

20.  He further prayed in aid on The Conflicts of Laws in Hong Kong (3^rd ed) which seemed to go further in terms of the Courts being restrained in their exercise of discretion notwithstanding that a jurisdictional gateway had been established:

“ 8.040 Once one of these jurisdictional hooks [in section 4 of the BO] has been satisfied, the courts have not tended to decline jurisdiction. It has however been recognized that it is inappropriate to exercise jurisdiction when it would in a practical sense be futile. The position has however not been authoritatively articulated by the courts to the same extent as in the context of the winding-up of companies. It is suggested that the basic, discretionary limits onthe exercise (as opposed to existence) of jurisdiction which havedeveloped in the company case law are equally applicable in the bankruptcy context. The fact that specific heads of jurisdiction are defined in the Bankruptcy Ordinance (unlike the Companies Ordinance) is not a reason for refusing to impose broader discretionary limits upon exercise of jurisdiction.116
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116  The analogy may be drawn with the application of the forum conveniens doctrine in the context of cases where jurisdiction has been established under a specific head of RHC O.11 r.1(1) as well as in cases where service has been effected within the jurisdiction.  In a sense, head (b) under the Bankruptcy Ordinance (Cap. 6) (presence in the jurisdiction) is analogousto service within the jurisdiction in an in personam action, whereas heads (a) and (c) (domicile, residence and carrying on business) are analogous to head (a) (domicile or ordinary residence) of RHC O.11 r.1(1).  However, there has never been any suggestion that a Seaconsar-like distinction as to onus should apply in the bankruptcy context.  Indeed, it is often thoughtthat head (b) under the Bankruptcy Ordinance (presence in Hong Kong) isthe most ‘exorbitant’ of the three, in respect of which a discretion to stay ismost likely to be exercised, in contrast to the relatively favoured treatment given under Seaconsar to cases in which jurisdiction is established by service in Hong Kong.  It is suggested that once any of the three heads under the Bankruptcy Ordinance has been met, there should be a single test as to the appropriateness of the exercise of the jurisdiction, applying the Latreefers approach discussed in connection with companies below. …”   

21.  Having said, that the learned authors recognized at paragraph 8.040 that “[o]nce one of these jurisdictional hooks has been satisfied, the courts have not tended to decline jurisdiction”.

22.  Mr Lam thus invited me to approach the exercise of discretion to bankrupt a foreigner albeit one who was in the jurisdiction on the day the Petition was served, on the same basis as an overseas company which was sought to be wound up under section 327 of the Companies Ordinance.

23.  If that were correct, this would involve applying the so called three core requirements.  The basis for winding up such companies has beenfully and conclusively explained by the Court of Final Appeal in Kam Leung Sui Kwan v Kam Kwan Lai (2015) 18 HKCFAR 501.

24.  Notwithstanding the attractive way in which Mr Lam has sought to persuade me to do so, I would respectfully decline to effectively adopt the winding up approach in personal bankruptcy cases.

25.  First, Mr Lam was not able to cite any authority for that proposition.  Notwithstanding it is of some ancient history (the English Bankruptcy Act on which our Ordinance was based was enacted in 1914) it is not apparent that this is something which has been argued or considered before. While this is of course true that this does not lead to the conclusion that it is not a sound argument, it would be surprising if it were, given that no one has sought to argue this until today.

26.  Second, any analogy between the two regimes is by definition a loose one.  Whereas section 4 sets out clear and different jurisdictional gateways, section 327 (and its English equivalent) was left in broad terms for the Court to develop.  More to the point, whereas jurisdiction can be founded by presenting a petition when the debtor is physically present in Hong Kong, there can be no exact equivalent in the winding up context for obvious reasons.

27.  Whilst I agree with Mr Lam that the Court retains a discretion when jurisdiction has been established, I do not believe the requirement is as exalting as suggested by him.

28.  It is true that at first blush it would appear that in certain cases, the Personal Presence Gateway would seem an exorbitant basis for asserting jurisdiction, for example over a foreigner who would be in Hong Kong only as a tourist but otherwise would have no connection to it.

29.  The legislature has seen fit to include this gateway to provide jurisdiction and there is no reason in principle why any discretion should be exercised in a way other than one which is flexible and fact specific.  No guidance has been provided by the statutory framework.  I do not see the imperative to import the considerations which apply under section 327 in winding up cases to section 4 of the Ordinance.

30.  Notwithstanding the tentative suggestions in The Conflict of Laws (supra) at para 8.040 and footnote 116 which considers a unitary principle between both regimes to be more satisfactory, I am not persuaded this is necessary, practical or apposite.

31.  One practical difference is that at the moment, the regime governing the winding up of overseas companies is more elaborate and presumably more costly, than in the case of personal bankruptcy.

32.  To take but one example, whereas the jurisdictional basis to wind up a company under section 327 needs to be clearly pleaded (see for example Re Grand China Logistics Holding HCCW 130/2013 (unreported, 19 August 2013), in bankruptcy this is not required.[1]

33.  It seems to me that if one were dealing with a tourist in the situation I referred to above, this may well be the sort of case where the Courts would refuse to exercise its discretion notwithstanding that jurisdiction had been established.  The connection would simply be too tenuous or fleeting.

34.  This is far removed from the evidence in the present case and I would not venture to provide an exhaustive list of factors relevant to the exercise of such discretion.  It is best left unfettered and to be developed incrementally over time.

35.  For present purposes, D, a Hong Kong Identity Card holder, being the former director and substantial shareholder of a company listed on the Stock Exchange of Hong Kong (albeit incorporated in the Cayman Islands) and with offices in Hong Kong agreed to guarantee that company’s debts, with the guarantee using Hong Kong law as the governing law and jurisdiction clause; cannot be said to be someone with a tenuous connection to the jurisdiction.

36.  It is strictly speaking unnecessary to determine whether the Petition falls within the strict wording of clause 18.2 as a “legal action or proceeding arising out of or relating to” the Guarantee.

37.  Irrespective of the strict contractual interpretation, this is a weighty factor in demonstrating more than a sufficient connection to the jurisdiction; such connection arising by virtue of D’s own choice.  There is thus no question of this being described as a long arm or exorbitant jurisdiction.

38.  I therefore do not agree that D has a limited connection with Hong Kong, nor that his connection is tenuous. 

39.  Given my conclusion on the Personal Presence Gateway it is unnecessary for me to consider all the other alternatives.  These are academic in any event, even if the Debtor were to appeal, as his position is that the Petitioner would need to establish the ‘three core requirements’ before the Court would exercise its discretion to make a bankruptcy order irrespective of which jurisdictional gateway is invoked.  Given this position, and given that D has accepted the Court has jurisdiction to make an order, it would be futile to engage in that analysis which would be entirely academic.   

40.  For these reasons I make the usual bankruptcy order with costs.

41.  It remains for me to thank counsel for their able assistance.