RE LAU WANG CHI, BARRY

CACV 147/2024

[2024] HKCA 712

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 147 OF 2024

(ON APPEAL FROM HCB NO 1018 OF 2024)

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REASONS FOR JUDGMENT

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Hon Kwan VP (giving the Reasons for Judgment of the Court):

1.  On 13 May 2024, we gave our judgment allowing the Debtor’s appeal in part from the order of Linda Chan J on 15 April 2024. Reasons for our judgment were handed down on 24 May 2024 (“CA Reasons”)[1].

2.  By our judgment, we set aside the judge’s order and substituted it with §2 of our order which is as follows:

“(1) The petition in HCB 1018/2024 be adjourned pending the determination of the appeal in CACV 371/2022 or the dismissal of the two New Evidence Applications (whichever shall first occur) on the condition that the Debtor makes payment into Court in the sum of HK$12,900,000.00 (the ‘Sum’) or secures the Sum to the satisfaction of the 1^st and 2^nd petitioners;

(2) The Debtor be allowed within eight weeks from the date hereof to make payment of the Sum into Court, with liberty to the Debtor to apply.”

3.  On 8 July 2024, the Debtor issued a summons under Order 3 rule 5 of the Rules of the High Court and the inherent jurisdiction of the Court seeking that §2(1) of our order be varied in the manner as indicated in the summons. In the submissions lodged by Mr Douglas Lam, SC for the Debtor[2], he provided a slightly amended version of the variation he seeks which reads as follows:

“The petition in HCB 1018/2024 be adjourned pending the determination of the appeal in CACV 371/2022 or the dismissal of the two New Evidence Applications (whichever shall first occur) upon the undertaking that the Debtor shall:

(i) forthwith procure Grade One Limited (‘GOL’) to charge the motor yacht named Sea Tiger (IMO 740012) call sign ZCTB9 (‘Sea Tiger’) in favour of the petitioners as security for payment of the Sum after the necessary variations to the Schedule to the Order of B Chu J dated 21 January 2022 have been made; and

(ii) procure GOL not to otherwise deal with (which for the avoidance of doubt shall not prohibit the Debtor from negotiating the sale of Sea Tiger), dispose of or diminish the value of Sea Tiger (save with the consent of the petitioners).”

4.  As an alternative and fallback position, he seeks to extend time for making payment into Court of the Sum as required in §2(2) of our order, such that time is to be extended for 42 days[3] from the date of the order to be made by this Court.

5.  This application is said to be made under the “liberty to apply” provision of our order.

6.  On the joint application of the Debtor and the petitioners, on 11 July 2024, Linda Chan J made an order in HCB 1018/2024 adjourning the petition to 29 July 2024.

The Debtor’s submissions

7.  In support of this application, the Debtor filed evidence on the valuation of Sea Tiger, a ‘superyacht’ that has been undergoing refurbishment since August 2020 and is valued by an independent surveyor at €3 million odd (around HK$26.2 million) as of 1 June 2024. The Debtor has received an offer on 2 July 2024 to purchase Sea Tiger at US$3.5 million (around HK$27.3 million odd). As stated in the buyer’s letter of intent, the potential buyer has up to 15 August 2024 to carry out sea trials and survey. The offer to purchase was to expire on 15 August 2024 with liberty to the parties to extend by which time the buyer would confirm if it wishes to proceed with the purchase. Hence, the Debtor would need time to apply to vary the undertakings in the order of B Chu J dated 21 January 2022 in order to complete the proposed sale, and then to arrange payment of the Sum into Court.

8.  The Debtor also deposed to the following matters:

(1)  There is already a charge over Sea Tiger in favour of CAM (one of the petitioners) by a mortgage deed executed on 19 February 2020 as security for the Facility Agreement of 29 November 2019, but CAM has not exercised its right under the mortgage. Instead, CAM and CMS chose to enforce the summary judgment on their counterclaim in HCA 494/2021 (subject of the Debtor’s appeal in CACV 371/2022) by presenting a bankruptcy petition against the Debtor.

(2)  Pursuant to the order of B Chu J in HCA 494/2021 on 21 January 2022, the Debtor and his companies, GOL and SGGL, have given undertakings to the Court not to remove Sea Tiger from Hong Kong, or in any way dispose of or deal with it or diminish its value, for the discharge of a Mareva injunction granted against them on 11 January 2022.

(3)  The petitioners’ representatives have inspected Sea Tiger on 7 August 2023 and 18 October 2023.

(4)  Sea Tiger is free of any charges except the mortgage in favour of CAM.

9.  On 26 June 2024, the Debtor’s solicitors wrote to the petitioners’ solicitors asserting that the value of Sea Tiger is more than sufficient to satisfy the judgment debt, and in any case the petitioners are fully secured in respect of the Sum as required by the order of the Court of Appeal. The Debtors offered to procure a charge over Sea Tiger as security for the judgment debt even though there is already a valid charge in favour of CAM.

10.  As no response was received from the petitioners on the offer, the Debtor issued this summons on 8 July 2024.

11.  The Debtor is prepared to undertake to pay any sale proceeds into Court if the sale of Sea Tiger should go through.

12.  Mr Lam emphasized that the judgment debt of petitioners is not undisputed, and this Court has assessed (on a tentative basis) that the two New Evidence Applications and the appeal in CACV 371/2022 do have reasonable prospects of success[4]. Even if the disputed loan principal relating to the Cachet Loan under the Facility Agreement is accounted for (HK$8.6 million odd), the remainder value of Sea Tiger of around HK$17.6 million is more than sufficient to cover the Sum of HK$12.9 million.

The petitioners’ submissions

13.  Mr Alex Yeung’s submissions for the petitioners are along these lines:

(1) The “liberty to apply” provision in our order only relates to §2(2), namely, the time given to the Debtor to satisfy the condition for adjourning the bankruptcy petition, see also §65 of CA Reasons. It does not pertain to the condition itself in §2(1). In any event, a “liberty to apply” provision can only be invoked for the purpose of working out the order and does not entitle a party to come and ask for the order to be varied[5].

(2) Whilst the Court has power under section 98(1) of the Bankruptcy Ordinance, Cap 6 to “vary any order made by it … under its … bankruptcy jurisdiction”, this power will only be exercised in “exceptional circumstances”, such as “fresh and cogent evidence such as would, if unanswered, furnish grounds for reversing or varying the original order”, and such an application will be “somewhat rare”. The onus is on the applicant to demonstrate the existence of such circumstances which justify the exercise of the discretion in his favour[6]. No such exceptional circumstances are shown by the Debtor. The evidence relied on by the Debtor regarding the proposed charge of Sea Tiger as security and its valuation is neither fresh nor cogent.

(3) On the freshness of the evidence, the Debtor must have known before the hearing on 13 May 2024 before this Court that he could have offered a charge over Sea Tiger to secure the adjournment of the petition. There is nothing to explain why he could not have raised this earlier.

(4) On the cogency of the evidence, the valuation obtained by the Debtor is unsatisfactory and falls far short of being cogent proof for these reasons:

(i) The surveyor provided the valuation “based on the documentation provided by [GOL] on 31 May 2024”, there is no indication in the valuation report that he had made a visual inspection of Sea Tiger.

(ii) The valuation is expressly limited by the “standard terms and conditions” of Marine Surveys & Engineering Services, which have not been provided by the Debtor to the petitioners.

(iii) The valuation methodology was by reference to the value of similar vessels taken from “online brokerage websites and brokers”, with no indication what websites or brokers were consulted or when such price data were obtained. The adjustment in asking price for comparison with Sea Tiger was based solely on the length of the vessel. No reason was given why other parameters were not considered. The surveyor did not know details of the comparators such as “date of last refit, location and tax status”. It is unclear if meaningful comparison could be made.

(5) Even if the power to vary the order is somehow triggered on the evidence available, the Court should not exercise its discretion as it is plainly reasonable for the petitioners to reject the Debtor’s offer to procure a charge over Sea Tiger as security. In gauging the “reasonableness” of the offer, the test for the “reasonable satisfaction” of the creditor that the debt has been secured or compounded for in section 178(1)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (which is the same as section 6D(3)(c) of Bankruptcy Ordinance that the Court may dismiss the petition if satisfied that the debtor’s offer has been “unreasonably refused”) should be applied[7]. Applying this test, the Debtor needs to show “no reasonable hypothetical creditor in the petitioner’s position” would have refused the offer, and the petitioners are entitled to have regard to their own interests and are not required to act justly, fairly or kindly. The petitioners’ refusal of the Debtor’s offer is “within the range of possible reasonable actions in this context”. They are entitled to take the view that given the shortcomings in the valuation, the proposed charge of Sea Tiger is not adequate security for the Sum.

(6) The extension of time as a fallback position should not be granted in light of the time already provided to make payment into Court, first by Linda Chan J on 15 April 2024 (five weeks) and later by this Court on 13 May 2024 (eight weeks). The recent offer of the potential buyer is of doubtful veracity. There is no cogent evidence that the potential buyer has the means to complete the contemplated purchase. The letter of intent of the buyer does not appear to be professionally prepared and even has an obvious typing error. Importantly, there is no assurance the contemplated sale and purchase would take place.

Discussion

14.  We are of the view that the Debtor can invoke the “liberty to apply” provision in our order to make the present application. We do not think the “liberty to apply” provision in our order should be so narrowly construed such that it applies only to the time imposed for complying with the condition. The condition we imposed is to pay the Sum into Court or to provide security for the Sum to the satisfaction of the petitioners. Instead of making a payment into court, the Debtor has chosen to provide security for the Sum by a charge over Sea Tiger and the petitioners did not find this form of security to their satisfaction. This conflict on the working out of our order should be resolved by the court, whether under the “liberty to apply” provision or the inherent jurisdiction. It is unnecessary to invoke the power to vary an order made under the bankruptcy jurisdiction in exceptional circumstances pursuant to section 98(1) of the Bankruptcy Ordinance.

15.  In resolving the conflict, the question is whether the proposed charge would give the petitioners adequate security for the Sum or equivalent protection as afforded by our order. In deciding whether the petitioners should or should not have regarded the charge offered as adequate security to their satisfaction, we apply an objective test, and that is whether it is reasonable for the petitioners to reject the offer in all the circumstances. We do not think the threshold should be set so high that it must be shown no reasonable hypothetical creditor in the petitioners’ position would have refused the offer. It should not be equated with the test in a very different context under the winding-up legislation or the bankruptcy legislation.

16.  We take on board the petitioners’ criticisms regarding the valuation obtained by the Debtor. Notwithstanding the apparent shortcomings in the methodology of the valuation, we do not think it is disputable that the value of the Sea Tiger is very substantial. We are inclined to think that its value should be sufficient to cover the Sum, even taking into account the disputed loan principal relating to the Cachet Loan under the Facility Agreement of HK$8.6 million odd. In the circumstances, the proposed charge of the Sea Tiger should afford adequate security of the Sum and sufficient protection for the petitioners. We have therefore granted the variation sought by the Debtor as revised in the submissions of Mr Lam mentioned in the earlier part of this judgment.

Costs

17.  Mr Lam submitted that the Debtor should only bear the costs of the summons and the petitioners should pay the costs of the hearing because of their unreasonable stance in not responding to the Debtor’s offer.

18.  We do not agree with him that the petitioners’ stance is unreasonable. They have made valid criticisms regarding the valuation of the vessel, even though we have rejected their submissions in the end. As the Debtor is seeking an indulgence from the Court, he should pay the costs of the hearing as well. On a summary assessment, we have assessed the reasonable costs payable to the petitioners at HK$100,000.