WILLIAM WANG v. BANK OF CHINA, SINGAPORE BRANCH

CACV 361/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 361 OF 2003

(ON APPEAL FROM HCSD No. 23 OF 2003)

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(HEARD TOGETHER)

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REASONS FOR JUDGMENT
AND
DECISION ON COSTS

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Hon Yuen JA (delivering the Reasons for Judgment and Decision on Costs of the Court):

REASONS FOR JUDGMENT

1. On 25 June 2004, we heard three appeals together, all from the same decision of Hon Reyes J in which he dismissed each Appellant's application to set aside a statutory demand served against him/her by the respondent bank ("the Respondent").

2. At the end of the hearing of the appeals, we dismissed the appeals and indicated that we would reduce the reasons for our judgment into writing to be handed down in due course. We do so now.

Background

3. The background of the appeals is briefly as follows. Each of the Appellants had signed guarantees in favour of the Respondent for various loan facilities granted by the Respondent to certain companies with whom the Appellants were associated. The loan facilities were first granted in 1983, and were added to, extended or revised from time to time.

4. In January 2003, after the companies defaulted, the facilities were cancelled and the Respondent demanded payment of the outstanding balances from the Appellants.

Statutory demands

5. When payment was not forthcoming, the Respondent served statutory demands against the Appellants in June 2003.

Applications to set aside statutory demands

6. On 30 June 2003, the Appellants applied to set aside the statutory demands. Rule 48 of the Bankruptcy Rules cap. 6 provides that the court may grant such an application if

"(b) the debt is disputed on grounds which appear to the court to be substantial".

Ground for disputing debts - illegality under Singapore Banking Act

7. The Appellants disputed the debts on the ground (amongst others) that the loans were illegal as they contravened the Singapore Banking Act. This Act provided (in various forms over the years) that a bank should not grant loans, etc. in excess of a certain percentage of its capital funds.

8. The Appellants suggested in their affirmations in support of the applications to set aside the statutory demands that the Respondent might have breached these provisions, although they did not adduce any evidence of what the Respondent's capital funds were at the time of the loans.

Evidence of exemption for ACU

9. In opposition to the Appellants' affirmations, the Respondent filed an affirmation of Lim Sock Huang, a Deputy Manager of the Respondent, on 22 September 2003. In paragraphs 25-7 of that affirmation, Ms Lim dealt with the Appellants' suggestion that the loans were illegal by relying on (amongst other things) an exemption in the Singapore Banking Act which was available to companies incorporated outside Singapore which operated an Asian Currency Unit ("ACU"). This exemption was introduced in 1984.

10. Ms Lim referred to a letter of advice to that effect from the Respondent's Singapore lawyers which was exhibited to her affirmation, and said at paragraph 27:

"In essence, the said advice stated that the facilities granted by the Respondent to [the companies] were denominated in US dollars and granted under an ACU as defined in s.77(5) of the Act. Under s.77(4) of the Act, a person who operates an ACU shall be exempted from the operation of section 29 if the person is a corporation incorporated outside Singapore. In the premises, I am advised by my legal advisers and verily believe that the Respondent which is a corporation incorporated in China and is authorised by the Singapore Monetary Authority to operate an ACU since 27th February 1980 is entitled to the said exemption provided under section 77 of the Act. Consequently, the Respondent could not be in breach of the Act by reason of its granting of the banking facilities in question" (italics added).

11. In their affirmations in reply to Ms Lim's affirmation, the Appellants did not challenge the assertion that the Respondent was incorporated in China, nor the assertion that it had been authorised to operate an ACU since 27 February 1980.

Discovery summons

12. Before the hearing of the applications to set aside the statutory demands, the Appellants issued a summons for discovery. The only class of documents sought by the Appellants related to the amount of capital funds. The summons was dismissed by Deputy Judge Poon in October 2003.

Issues at hearing of applications to set aside statutory demands

13. At the hearing of the applications to set aside the statutory demands in November 2003, the only issues raised were illegality and undue influence.

14. The issue of undue influence is no longer taken on appeal and therefore, we say no more about it.

15. Regarding the issue of illegality, the judge recorded (at paragraph 33 of the judgment) that the facilities in question were granted under an ACU, and that the Respondent, having been incorporated outside Singapore, had been authorised to operate an ACU since 27 February 1980.

16. These matters were recorded without discussion because those assertions in Ms Lim's affirmation were not put in issue either in the Appellants' affirmations in reply or in their counsel's submissions.

17. What was in issue at the hearing was whether the ACU exemption (having been introduced only in 1984) had any effect on the loan facilities which had been granted before 1984.

Decision below

18. The judge held that there was no evidence that the Respondent's demands were for the monies loaned before the ACU exemption was introduced in 1984, and by nature of the revolving facilities, it was unlikely that they were. The reasons for the judge's decision appear in detail in his judgment and those reasons are no longer challenged on appeal.

Ground of appeal

19. What the Appellants have challenged by way of supplementary notice of appeal is that there was an ACU exemption at all. As put by their counsel in his skeleton submissions, the judge's decision was premised on the ACU exemption being applicable to the loans but (so it is submitted) that evidence was "hearsay or double hearsay".

20. At the hearing of the appeal, it was first necessary to ascertain from Counsel for the Appellants exactly what he says was "hearsay or double hearsay" about the evidence of the exemption. An exemption operates by the application of a law to certain facts. The relevant law was a section in the Singapore Banking Act. The relevant facts (as asserted by the Respondent) were (i) the Respondent's incorporation outside Singapore and (ii) the Respondent's authorization by the Singapore Monetary Authority to operate an ACU since 27 February 1980.

21. Counsel for the Appellants clarified that he was not suggesting that the advice of Singapore law given by the Respondent's Singapore lawyers was hearsay. What he was challenging was the fact that the Respondent had been authorized to operate an ACU.

22. We do not understand why it has been submitted that this piece of evidence was hearsay. In paragraph 27 of Ms Lim's affirmation, she refers to the advice of the Respondent's lawyers that the Respondent is entitled to an exemption, but the fact that the Respondent had been authorized to operate an ACU since 27 February 1980 (reproduced in italics in paragraph 10 above) did not come from the lawyers' letter of advice (which was exhibited).

23. When this was pointed out to Counsel for the Appellants at the appeal, he suggested that in that case the source of that evidence had not been disclosed. This was to ignore paragraph 2 of the affirmation of Ms Lim (the Respondent's Deputy Manager) which stated that the facts in her affirmation were either within her personal knowledge or were true to the best of her information "derived from documents duly kept by the Respondent in the course of its business". In the circumstances, we were not persuaded that the fact being challenged on appeal was hearsay.

24. Insofar as Counsel for the Appellants criticized the Respondent for not having exhibited a document recording that fact, that does not affect the admissibility of that piece of evidence, a piece of evidence that was not only unchallenged in the Appellants' affirmation in reply, but was actually advanced by their counsel in submissions before the judge, the point then being made that since the ACU exemption only became effective in 1984, it did not save the loan facilities from the defence of illegality as the facilities had been granted since before 1984.

25. Indeed, if the Appellants' case before the judge had been that there was no admissible evidence that the Respondent was authorized to operate an ACU (until September 2003 - as shown in the updated list exhibited to Ms Lim's affirmation), that would have struck down the Respondent's ACU exemption point at its root and would have been the main argument. It was not mentioned.

26. As such, it was not necessary for this court to consider the interesting issue as to whether an application to set aside a statutory demand was interlocutory for the purposes of adducing hearsay evidence under Order 41 r.5 Rules of the High Court (cf Waters v Malahon Credit Co Ltd HCSD 24/2001 par. 10, per To, Dep. J.; [2004] 2 HKC 94 par. 13, Ct of App) and the implication of Part IV of the Evidence Ordinance (Hearsay Evidence in Civil Proceedings).

Order

27. We accordingly dismissed the appeals without needing to hear from Counsel for the Respondent.

DECISION ON COSTS

28. At the end of the hearing of the appeals, Counsel for the Respondent sought an order that the Respondent be awarded the costs of the appeals on an indemnity basis. We heard submissions in opposition from Counsel for the Appellants and indicated that we would reserve our decision on the costs issue, which we now give.

29. Having considered the submissions from both parties on the basis on which costs should be paid, we would, in the exercise of our discretion, order that the Appellants pay the Respondent's costs on an indemnity basis. With respect to Counsel for the Appellants, these appeals were exceptionally unmeritorious and should never have been brought.