RE LAM LAM

CACV 396/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 396 OF 2002

(ON APPEAL FROM HCB NO. 14221 OF 2002)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1. This was an appeal from a judgment of Chung J. given on 15 October 2002 whereby he adjudged the debtor bankrupt and made the usual bankruptcy order. At the conclusion of the hearing of this appeal, this court allowed the appeal and set aside the bankruptcy order. We now give our reasons in writing.

Background

2. The bankruptcy petition was based on a judgment debt of $302,294.27 together with interest on $289,008.43. That judgment debt arose from High Court Miscellaneous Proceedings No.1205 of 2001. In brief, it is the judgment debtor's case that there is an outstanding action namely High Court Miscellaneous Proceedings No.1235 of 2001 after which, if the judgment debtor is successful, she will be solvent and not liable to be made bankrupt.

3. In those proceedings, HCMP 1235 of 2001, the petitioning creditor has claimed against the judgment debtor in respect of a mortgage which was executed on 18 October 1994 in respect of a flat in Riviera Gardens, Tsuen Wan. Those proceedings were commenced by Originating Summons. The property that was the subject of those proceedings was sold in May 2001. In November 2001, the petitioner applied in effect for summary judgment against the judgment debtor. This was refused and the judge ordered that the action should be carried on as if commenced by writ. The judge must have done so because it emerged from the evidence that had been filed that the judgment debtor was alleging that the mortgage had been entered because of a misrepresentation and under undue influence.

4. That action has proceeded to the stage of close of pleadings and there seems to have been very little which has taken place with regard to that action since then. Instead, in July 2002 the petitioner issued the bankruptcy petition. In opposing the petition, as I have said, the judgment debtor relied on her case in HCMP 1235 of 2001. In particular, it was reiterated that those proceedings were being defended on the grounds of undue influence and misrepresentation. It was said in paragraph 10 of the judgment debtor's affirmation that, if the judgment debtor could successfully defend those proceedings, she would have adequate assets to pay the judgment debt. There is no dispute as to that.

The Judgment below

5. It would seem that the judge below only had before him the affirmation of the judgment debtor in the bankruptcy proceedings and did not have before him the file in HCMP 1235 of 2001. The affirmation made on behalf of the petitioning creditor did of course exhibit one of the judgment debtor's affirmations in HCMP 1235 of 2001. However, had the judge seen the whole file he would have been aware that the judgment debtor had made another affirmation which together with the other affirmation she had served in these proceedings, raised detailed allegations that the judgment debtor had relied upon representations made by her elder brother and, indeed, that she had been misled as well by statements made by an officer of the bank whom she trusted. The importance of the matter is that the judgment debtor claims that she signed the mortgage under circumstances of misrepresentations and undue influence and that had she been aware of the fact that the mortgage document, which she was signing, gave security to the petitioner in respect of all debts owed by the company owned by her elder brother, she would not have committed her property to that extent.

This appeal

6. The petitioning creditor has served affidavits in HCMP 1235 of 2001 seeking to rebut the judgment debtor's allegations. However, it is not possible for a court to decide disputed questions of fact on affidavit unless there are other factors which make it possible for it to do so. In the present circumstances, I do not see how a court could decide whether the judgment debtor's allegations are true without a trial.

7. In argument before us, Mr Wong, on behalf of the petitioner, sought to argue that even if the judgment debtor's allegations were true, she would still be liable to the petitioner to an extent which would render her insolvent. That argument turns on the question as to whether the petitioner can recover anything. That in turn depends upon whether rescission is an "all or nothing process". In the case of TSB Bank plc v Camfield [1995] All E.R. 951, the Court of Appeal in England so held. There is conflicting authority, in particular, that of the High Court in Australia in the case of Vadasz v Pioneer Concrete (SA) Pty Limited [1995] 184 CLR 102. The position was summarised in The Law of Restitution 6th Ed. by Lord Goff of Chieveley and Jones at page 357-8 where it is said:

"It is to be hoped that the House of Lords will follow the High Court of Australia which has said that the view that 'setting aside' is an 'all or nothing process' should not be accepted ..."

8. Applications for bankruptcy orders are not proceedings in which complicated questions of fact or law should be decided. They are proceedings which should be brought where the petitioner's claim to a monetary sum is clear. House of Lords points should be left to mature consideration at trial. In the present case, when summary judgment was sought, the judge came to the conclusion, on the affirmation evidence, that there was a triable issue as to fact, if not also law as well. It is true that the full extent of the affidavit evidence in HCMP 1235 of 2001 was not, as such, before the judge below. However, he was made aware that summary judgment had been sought and had been refused and one of the judgment debtor's affirmations was before him. Hence, even though the defence which was before him leaves a great deal to be desired, it is clear the court had sufficient material to conclude that there was a triable issue. In those circumstances, it was clearly wrong that a bankruptcy order was sought. The petitioning creditor's proper course was to pursue the action, which was still in being, and take whatever steps it considered necessary in that action to bring it to a conclusion.

Hon Le Pichon JA:

9. I agree.

Hon Ma JA:

10. I agree.