RE CHAN CHUN CHUEN

HCB 6563/2020

[2021] HKCFI 2385

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 6563 OF 2020

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R E A S O N S   F O R   J U D G M E N T

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1.  At the hearing of the petition presented by the petitioner, Chinachem Charitable Foundation Limited (“Petitioner”), on 25 September 2020 (“Petition”), I made the usual bankruptcy order against the debtor, Mr Chan Chun Chuen (“Debtor”). These are the detailed reasons for my judgment.

2.  Shortly before the hearing, on 5 August 2021, Messrs Bough & Co, the solicitors on record for the Debtor, informed this Court that they had applied[1] for an order to cease to act for the Debtor as they had not received the costs on account requested of the Debtor, and they had no instructions to appear for the Debtor. Their attendance at the hearing was excused by this Court. 

3.  At the hearing, the Debtor appears in person and makes his submissions orally. 

The Debt

4.  The Petition is based on the Debtor’s failure to comply with the statutory demand dated 18 August 2020, which requires him to pay to the Petitioner the amount of $28,391,452.45 (“Debt”) within the next 21 days (“SD”).  The SD was served on the Debtor on 27 August 2020.  In the SD, there was no reference to the security held by the Petitioner (as described in §9 below) over the Debtor’s assets. 

5.  The Debt arose out of the costs certified as payable by the Debtor under 2 Allocaturs, less the part payments made by the Debtor:

(1)  Allocatur (Bill No 1) dated 12 July 2012 in the amount of $36,835,003.54, being the taxed costs payable by the Debtor pursuant to the order of Lam J (as he then was) made on 16 April 2010 in HCAP 8/2007.  After deducting the payments received by the Petitioner on 19 November 2012 ($8,822,680.99), 24 April 2013 ($1,016,673.88), 18 April 2016 ($1,445,464.10), 15 September 2017 ($5,181,469.49) and 28 February 2019 ($5,341,956.61). The net amount due was $15,026,758.47; and

(2)  Allocatur (Bill No 2) dated 12 July 2012 in the amount of $13,364,693.98, being the taxed costs payable by the Debtor pursuant to the order of the Court of Appeal made on 14 February 2011 in CACV 62 & 101/2010.   

6.  HCAP 8/2007 concerns the disputes over the validity of a purported will of the late Nina Wang dated 16 October 2006 (“2006 Will”) under which the Debtor was named as the sole beneficiary of her residuary estate (“Estate”). 

7.  In the Judgment handed down on 2 February 2010 in HCAP 8/2007 (“Judgment”), Lam J (as he then was) pronounced against the validity of the 2006 Will, and found an earlier will which named the Petitioner the beneficiary of the Estate to be valid.  In the Judgment on Costs dated 16 April 2010 (“Costs Judgment”), the Debtor was ordered to pay the Petitioner’s costs of the action on indemnity basis,[2] and 80% of the costs of the hearing to vary the costs order nisi on an indemnity basis (“1^st Costs Order”).

8.  On 14 February 2011, the Court of Appeal in CACV 62 & 101/2010 dismissed the Debtor’s appeals against the Judgment and the Costs Judgment, and ordered him to pay the Petitioner’s costs of the appeal on an indemnity basis (“2^nd Costs Order”). 

9.  In §5 of the Petition, the Petitioner states that it holds security in the form of charging order absolute made on 7 September 2012 in each of HCAP 8/2017 and CACV 62 & 101/2010 (“Charing Orders”), but will give up such security for the benefit of all the creditors in the event of a bankruptcy order being made.     

10.  Under the Charging Orders, the Debtor’s interest as co-owner in the following properties (the other joint tenant is Ms Tam Miu Ching, the Debtor’s wife) stood charged as security for the amounts then owed to the Petitioner under the 2 Allocaturs described in §5 above:

(1)  Flat B, 15/F, Wealthy Heights, 35 MacDonnell Road, Hong Kong together with car parking space no 230 (“MacDonnell Properties”); and

(2)  Flat B and C on 43/F, Block 1, Finery Park, 7 Yuk Nga Lane, Tseung Kwan O, New Territories (“Finery Properties”).

11.  The MacDonnell Properties were sold and assigned to a third party on 22 April 2013 for $34,800,000 and the Charging Orders over such properties were discharged on 2 May 2013.

12.  As for the Finery Properties, it appears that they are no longer held by the Debtor and his wife as joint tenants after notices of severance dated 4 June 2018 were filed at the Lands Registry although they remain co-owner of the Properties. 

13.  At the hearing, the Debtor says that his wife still resides at the Finery Properties. Despite his repeated attempts to seek his wife’s agreement to allow the Debtor to sell his 50% interest in the Finery Properties, his wife did not agree to do so.   

Inability to pay the Debt

14.  The Debtor accepts that he owes the Debt to the Petitioner.  He does not dispute that the SD was served on him and that he has not paid the Debt or complied with the SD in any way.  As an unpaid creditor, the Petitioner is entitled ex debito justitiae to seek a bankruptcy order against the Debtor.    

15.  As the Debtor has failed to comply with the SD, by virtue of section 6A(1)(a) of the Bankruptcy Ordinance (Cap 6) (“Ordinance”), the Debtor is deemed to be unable to pay his debt.  Apart from this, at the hearing, the Debtor confirms that he does not have any money, whether in Hong Kong or anywhere else in the world, which he can use to pay the Debt.  Indeed, the Debtor says that he does not even have money to retain any lawyers to represent him in these proceedings.  This confirms that the Debtor is unable to pay his debts, which is sufficient for the Court to make a bankruptcy order against him. 

16.  Nevertheless, in his affidavit filed in opposition to the Petition[3] and as summarised by his former counsel[4] in his skeleton dated 6 January 2021, the Debtor opposes the Petition on the following grounds:

(1)  The Debt “arose and was incurred due to elements of fraud, collusion or miscarriage of justice engineered by the Petitioner” (1^st Ground).

(2)  The Debtor has commenced an action against the Petitioner in HCA 2112/2020 (“2020 Action”) which, if successful, would eliminate the Debt (2^nd Ground).

(3)  The Debtor “is not indebted to such an amount as would justify the Petitioner in presenting the Petition against him, particularly in light of the Petitioner’s security in the form of charging order absolute dated 07.09.2012” (3^rd Ground). 

17.  Under the 1^st and 2^nd Grounds, the Debtor is in effect seeking to mount a collateral attack on the Judgments and the 1^st and 2^nd Costs Orders in the Will Proceedings (as defined in §22 below), as well as the criminal proceedings where he was found guilty of forgery and using a false instrument and was sentenced to 12 years’ imprisonment in HCCC 182/2012 (“Criminal Proceedings”).  Under the 2^nd Ground, the Debtor relies on a cross-claim against the Petitioner. 

Applicable principles

18.  The principles are well established. 

19.  The burden is on the debtor to show that there is a bona fide dispute on substantial ground in respect of the debt by adducing sufficiently precise factual evidence which is believable, and must establish that he has a defence of substance, not just a fair probability of one (Re Leung Cherng Jiunn [2016] 1 HKLRD 850, at §27, per Kwan JA (as she then was)).

20.  Where, as here, the debtor seeks to rely on a cross-claim, he has to show that the cross-claim is genuine, serious and of substance.  For this purpose, there must be supporting relevant details to demonstrate that the cross-claim is based on substantial ground.  Delay in prosecuting a cross-claim may be relevant in the assessment of its genuineness and credibility, but it is not an absolute bar to reliance on it (Re Shang Lili, HCB 5329/2014, 25 January 2016, §§10, 24, per Ng J; Re Cheung Chi Mang [2018] HKCFI 984, §§11-15, per Ng J).

21.  Where the debt relied on by the petitioner is a judgment debt, the bankruptcy court will be guided by the following principles as expounded in Re Tam Mei Kam, CACV 87/2012, 8 May 2013, §§22-27:

(1)  The Court will treat the judgment as prima facie evidence that the debtor is indebted to the creditor (§22.1). 

(3)  If the debtor has lodged either an application to set aside the judgment (in a case where the judgment did not require a decision on the merits) or an appeal, the court may stay the petition to await the result or to make a bankruptcy order if the debtor fails to satisfy the Court that he has a reasonable prospect of succeeding in the application or appeal (§25.1-25.2).

(4)  If the debtor has not lodged the setting-aside application or appeal but intends to do so, he must also provide a reasonable explanation why he has failed to act in time (§26.1). 

(5)  If the judgment was obtained after a full trial on the merits, the bankruptcy court would only inquire into such a judgment if the debtor can show fraud, collusion, or miscarriage of justice (§26.2).

1^st and 2^nd Grounds

22.  The 1^st and 2^nd Grounds both concern the Judgments in HCAP 8/2007 and CACV 62 & 101/2010 (together “Will Proceedings”).  It is alleged that the Petitioner obtained the Judgments by fraud, and is liable to pay damages to the Debtor. 

23.  On 17 December 2020, the Debtor commenced the 2020 Action against the Petitioner and Messrs Philip KH Wong, Kennedy YH Wong & Co (“PWKW”) and alleged that the Petitioner had been implicated in actions of fraud and perverting the course of justice in HCAP 8/2007 and claims, inter alia, (1) a declaration that the Petitioner’s receipt of an anonymous “donation” of $50 million through PWKW constituted a fraud, and (2) an order that the Petitioner and PWKW do compensate the Debtor in respect of all the loss suffered by him in HCAP 8/2007 including all the costs ordered to be paid by the Debtor in the Will Proceedings[5]. 

24.  The Debtor’s allegations pleaded in the statement of claim filed in the 2020 Action (“SOC”), as summarised by Ms Queenie Lau (appearing with Mr Harrison Miao), counsel for the Petitioner, are as follows:

(1)  The Chairman of the Petitioner, Dr Kung Yan Sum (“Dr Kung”), allegedly made fraudulent misrepresentations to Mr Chan Shu Chun (“CSC”), which led to CSC transferring $50 million to another person who would carry out the investment (SOC §§1-2).

(2)  The recipient subsequently remitted the $50 million to PWKW, which was allegedly used to fund the Petitioner’s costs in HCAP 8/2007 (SOC §3). 

(3)  The alleged fraudulent scheme now forms the subject matter of other proceedings in HCA 1949/2013, HCA 832/2014, HCA 113-120/2015 (SOC §§25-44). 

(4)  A solicitor at PWKW committed perjury in HCAP 8/2007, thereby caused loss to the Debtor including the legal costs incurred in the Will Proceedings (SOC §§45-47). 

25.  The Debtor repeats the same allegations in his affidavit filed in opposition to the Petition. 

26.  In my judgment, the 1^st and 2^nd Grounds do not constitute a bona fide dispute on substantial grounds in respect of the Debt.  Nor do they constitute a genuine or serious cross-claim against the Petitioner. 

27.  First, the Debt arose out of the 1^st and 2^nd Costs Orders.  There is no suggestion (let alone any application) to appeal against or set aside the 1^st and 2^nd Costs Orders.  As the 1^st and 2^nd Costs Orders remain binding upon the Debtor, it is indisputable that the Debtor is liable to pay the Debt.   

28.  Second, in alleging that the Judgments were obtained by fraud or collusion, the Debtor is in effect mounting a collateral attack on the Judgments after he has exhausted his rights to appeal.  Other than his bare allegations made in the SOC and his affidavit, there is simply no evidence, let alone sufficiently precise factual evidence which is believable, in support of the very serious allegations made by the Debtor against the Petitioner, Dr Kung and PWKW.  I do not think it is open to the Debtor to ask this Court to go behind the Judgments in the Will Proceedings, in circumstances where:

(1)  the findings of forgery were made by Lam J (as he then was) in HCAP 8/2007 after a 40-day trial;

(2)  as the Court of Appeal observed in CACV 62 & 101/2010, 14 February 2011, §47:

“The judge came to the clear conclusion that Mr Wong’s and Mr Ng’s evidence proved that the document attested to by them on 16 October 2006 was not the 2006 will. In our view that was a finding that the judge made after the most careful and painstaking examination of the evidence and in full consciousness of what were submitted on behalf of first defendant to be the inherent improbabilities. He was not merely fully justified in making such a finding, but that finding is in our view unassailable. That finding alone would debar [the Debtor] succeeding in this case and, furthermore, it was made in the full appreciation of the fact that it carries with it the inevitable conclusion that [the Debtor] has put before the court a forged document in his quest to secure Nina Wang’s enormous fortune.”

(3)  the Debtor’s application for leave to appeal to the Court of Final Appeal was dismissed by the Appeal Committee on 24 October 2011; and

(4)  the Debtor’s forgery of the 2006 Will was the subject matter of the Criminal Proceedings brought by the Secretary for Justice against him, where he was found guilty of forgery and using a false instrument by the jury, and was sentenced to 12 years’ imprisonment.  The Debtor also failed in his appeals against conviction and sentence in CACC 233/2013.

29.  Third, it is clear that there is no reasonable prospect of the Debtor succeeding in setting aside the Judgments, even assuming he has claimed such relief in the 2020 Action (which he has not).  

30.  As Ms Lau submits, for a judgment to be set aside on the ground of fraud:

(1)  There must be conscious and deliberate dishonesty in relation to the relevant evidence given;

(2)  The fresh evidence must be material, in that it demonstrates that the previous relevant evidence, action, statement or concealment was an operative cause of the court’s decision to give judgment in the way it did, or that it would have entirely changed the way in which the first court approached and came to its decision; i.e., the conscious and deliberate dishonesty must be causative of the impugned judgment being obtained in the terms it was; and

(3)  The question of materiality of the fresh evidence is to be assessed by reference to its impact on the evidence supporting the original decision, not by reference to its impact on what decision might be made if the claim were to be retried on the honest evidence (see Mayer Corporation Development International Ltd v Alliance Financial Intelligence Ltd [2019] 6 HKC 582, §§32-34, 40, 72, per Kwan VP). 

31.  In his affidavit and the SOC, other than making bare allegations that certain factual witnesses and handwriting expert were allegedly bribed by the Petitioner, the Debtor has not even attempted to identify which part of their evidence is alleged to be false, or how it would have affected the Judgments in the Will Proceedings.  This is not surprising as the 2006 Will was found to be a forgery in the Criminal Proceedings, which were separate proceedings commenced by the Secretary for Justice against the Debtor. 

32.  Fourth, on the Debtor’s own case, the alleged fraudulent scheme was a fraud perpetrated on CSC, not the Debtor.  Even if there is any credible evidence in support of such scheme (none has been adduced), the scheme only enabled the Petitioner to fund the litigation in the Will Proceedings.  It would not have affected the quality of the evidence or submissions, or the substantive rights asserted by the Petitioner in the Will Proceedings. 

33.  As Ms Lau submits, the Debtor’s case is not improved by alleging unlawful means conspiracy against the Petitioner and PWKW given that:

(1)  to establish the cause of action, the unlawful means must have caused loss to the victim, rather than merely being the occasion of such loss being sustained (Revenue and Customs Commissioners v Total Network SL [2008] AC 1174, §§93 & 95 per Lord Walker, 119 per Lord Mance; Racing Partnership Ltd v Done Bros Ltd [2021] Ch 233, §154 per Arnold LJ; OBG Ltd v Allan [2008] AC 1, §§160 per Lord Nicholls, 268-269 per Lord Walker);

(2)  here, the alleged fraud is said to have been perpetuated on CSC, who was a total stranger to the Will Proceedings; and

(3)  the alleged scheme (at its highest) only enabled the Petitioner to pursue the Will Proceedings.  It was the Debtor’s own pursuit of a counterclaim based on the 2006 Will which led to the findings of forgery against him.  There is therefore no basis for the Debtor to allege that the scheme has caused the “loss” to him (i.e. his liabilities in the Will Proceedings).  The Debtor’s claim for damages for unlawful means conspiracy is plainly unsustainable. 

34.  Fifth, there has been unexplained and inordinate delay on the part of the Debtor in pursuing the cross-claim against the Petitioner.  On the Debtor’s own case, he was aware of the allegations made by CSC (which he relies on in his affidavit and the SOC) in as early as 2016.  Yet, he did not take any step to pursue the cross-claim until December 2020.  It is not suggested that the Debtor’s imprisonment has impeded his ability to bring the cross-claim.  Any such suggestion would be unsustainable as he was able to commence the 2020 Action whilst he was still in imprisonment. 

35.  I would add that at the hearing, the Debtor raises some new allegations concerning certain legal proceedings in the Intermediate People’s Court in Xiamen.  He asserts that the Xiamen court has agreed to have a case set in record and that there will be a hearing on 12 November 2021 at which certain findings will be made by that court which may support his allegations made in the 2020 Action.  The Debtor said that the  proceedings were commenced on his behalf in 2017 and his lawyers agreed to take on the case even though he did not (and still does not) have the means to pay their costs.  The Debtor asks this Court to defer or adjourn the Petition until after the hearing in Xiamen. 

36.  I do not think it is fair or appropriate for the Debtor to raise new allegations only at the hearing and without providing any single document in support of his allegations.  This is particularly so when on his own case, he was aware of the existence of the Xiamen proceedings in as early as 2017.  It seems to me that the new allegations are nothing more than an attempt deployed by the Debtor to derail or defer these proceedings. 

3^rd Ground

37.  As stated above, the SD did not contain any description as to the nature and value of the security even though the Petitioner admittedly holds the Charging Orders over the Debtor’s interest in the Finery Properties. Ms Lau accepts that this is a defect in the SD but submits that such defect would not invalidate these proceedings as s 124 of the Ordinance providesthat no bankruptcy proceedings shall be invalidated by any formal defect unless the court is of the opinion that substantial injustice has been caused by the defect and that injustice cannot be remedied by any court. 

38.  I do not think the omission to state the Charging Orders in the SD has caused any substantial injustice to the Debtor given that:

(1)  The Debtor was aware that the Charging Orders had been obtained by the Petitioner back in September 2012 and remain charged against the Finery Properties.  He was also aware that without the agreement of his wife, he would not be able to sell the Finery Properties and use the proceeds to pay the Debt.  The Debtor confirms that this remains the position. The Petitioner would not be able to give a realistic value on the Debtor’s interest in the Finery Properties as no one in the market would be willing to purchase only the Debtor’s joint interest, such that the value attributable to the Charging Orders would be negligible, if not nil (Re Chan Chi Loi [2008] 2 HKLRD 444 (CA), §34).

(2)  The Debtor has never applied to set aside the SD.

(3)  The Petitioner has in the Petition stated that it will give up the security in the event that a bankruptcy order is made, as it is entitled to do so. 

(4)  There is no suggestion that the omission to state the Charging Orders in the SD has caused any injustice to the Debtor. 

39.  Lastly, the Debtor towards the end of his submissions, asks the Court to adjourn the matter for a short time to enable him to complete his application for legal aid so that he can be represented by lawyers in these proceedings.  I refuse the application.  The Debtor has not articulated any reason to explain why he did not make such application earlier, when he knew full well that the Petition had been presented in September 2020, and that he did not have any money to pay any legal fees to his lawyers.