RE CHOW YUEN CHUEN

HCB 6004/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 6004 OF 2015

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J U D G M E N T

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Introduction

1. This is the hearing of the bankruptcy Petition (“Petition”) presented by AIA International Limited (“Petitioner”) against Mr Chow Yuen Chuen (“Debtor”) on 30 July 2015.  The Petition is opposed by the Debtor.

2. The Petition is based on the Debtor’s non-compliance with a Statutory Demand dated 8 May 2015 (“Statutory Demand”) for the sum of around HK$168,972 (“Debt”).  The Statutory Demand is in turn founded on a Judgment dated 22 April 2015 (“Judgment”) in DCCJ No 796 of 2015 (“Action”) in which the Debtor was adjudicated to pay the Petitioner (i) HK$159,327.67 (ii) interest at 8% pa and (iii) HK$7,130.00 fixed costs.

3. Both the Statutory Demand and the Petition have been served by way of advertising in local newspapers. No issue on service was taken by the Debtor - he was present in court at previous hearings of the Petition.

4. The Debtor’s application to set aside the Judgment was dismissed by Master Cheung on 13 January 2016. There was no appeal against the Master’s Order.

5. There was also no application to set aside the Statutory Demand.

Background

6. By way of background, the Debtor was a former agent of the Petitioner. For this purpose, they have entered into a Career Representative’s Contract dated 1 June 2010 (“CRC”) and a Letter of Understanding for Monthly Bonus dated 22 June 2010 (“LOU”).  By letter dated 27 October 2011, the CRC and hence the Debtor’s agency was terminated by the Petitioner with effect from 1 November 2011.

7. Under Clauses 1 to 5 of the CRC, the Debtor was entitled to commission on insurance where his name appeared in the application for such insurance, but was also liable to repay to the Petitioner part of the commission in the circumstances set out therein. Under clause 5 of the LOU, the Petitioner agreed to pay the Debtor a monthly bonus of HK$7,000 during the 1^st twelve months of his agency. Pursuant to that clause, the Debtor has received from the Petitioner monthly bonus in the total sum of HK$84,000.

8. Under Clause 10 of the LOU, in the event that the CRC was terminated for any reason within the 2^nd year after the Commencement Date[1], the Debtor agreed to refund to the Petitioner immediately and unconditionally 67% of the monthly bonus paid to him. Since the CRC was terminated on 1 November 2011 ie within the 2^nd year after the Commencement Date, the Debtor was liable to repay 67% of the monthly bonus. Further, pursuant to the terms of Clauses 1 to 5 of the CRC, the Debtor should also refund to the Petitioner HK$103,802.86, being adjustments on First Year Commission (“FYC”). Details of such adjustments have been set out in paragraph 8 of the Statement of Claim filed in the Action.

9. In paragraph 9 of the Statement of Claim filed in the Action, the principal sum of HK$159,327.67 was calculated as follows:

Particulars

Description		Amount
1.	FYC adjustments	HK$103,802.86
2.	67% of Monthly Bonus of HK$84,000.00	HK$56,280.00
		HK$160,082.86
Less:	repayment/withheld commission	(HK$755.19)
	Total:	HK$159,327.67

Deliberation

10. This court shall first remind itself of the law.

11. In order to successfully oppose the Petition, a debtor has to show a bona fide dispute on substantial grounds by sufficiently precise evidence which is believable and must establish that he actually has a defence of substance, not just a fair probability of one: Hong Kong Bankruptcy Law Handbook 4^th Ed at p47 para 6A.10; ICS Computer Distribution Ltd [1996] 1 HKLR 181; Re Tam Mei Kam unrep, HCB 3777 of 2011, 25 April 2012, Barma J (as he then was); Re Yuen Mun Wa (a debtor)[2012] 5 HKLRD 108.

12. Where the underlying debt is based on a judgment, the court hearing the bankruptcy petition will treat the judgment as prima facie evidence that the judgment debtor is indebted to the judgment creditor. In appropriate circumstances, the court may “go behind” the judgment - what is normally required is some “fraud”, “collusion” or “miscarriage of justice” which impinges on the validity of the judgment, the latter phrase being clearly capable of wide application according to the particular circumstances of the case: Dawodu v American Express Bank [2001] BPIR 983; Re Tam Mei Kam unrep, CACV87 of 2012, 8 May 2013, Cheung, Yuen & Lam JJA.

13. In Re Tam Mei Kam supra, Yuen JA set out the principles to be applied where a petition is based on a judgment debt or court order as follows:

“22.1 The bankruptcy court will treat a judgment for a sum of money as prima facie evidence that the judgment debtor is indebted to the judgment creditor for that sum.

22.2 As prima facie evidence of indebtedness, it may be rebutted and that is what is meant by “going behind” the judgment. It is important to understand the rationale for this approach. First, bankruptcy affects an individual’s legal status. Secondly and importantly in this context, the bankruptcy court’s exercise of the power and/or duty to inquire into a judgment is necessary to protect a debtor’s real creditors from collusive judgments entered into by the debtor in order to initiate a bankruptcy and thereby reduce the funds available for his real creditors.

…

23. In other words, the reason why a bankruptcy court is not conclusively bound by a judgment debt is so that (in appropriate circumstances) it can inquire whether there was actually bona fide consideration for it. Of course apart from opposing creditors at the petition seeking to impugn the judgment debt, the judgment debtor himself can also seek to do so, especially if the judgment had been obtained by default. See Fletcher, The Law of Insolvency, 4^th ed p163 para 6-116:

‘One justification for the existence of this power is that a debtor might connive with others to allow a number of bogus default judgments to be entered against himself by his ‘allies’, who could rescue some of his estate on his behalf by later proving for the debts in the bankruptcy. But the far more usual occasion for invoking this doctrine is when it is the debtor who will otherwise suffer injustice, and this is particularly capable of occurring when the judgment was obtained by a compromise of action or by default. A default judgment, by its very nature, involves a one‑sided presentation of the facts which may lack objectivity and may even be inaccurate or unfair …’.

However that is not to say that in every case the bankruptcy court should exercise its powers of inquiry simply for a judgment debtor to get a second bite of the cherry and conduct parallel proceedings to review a judgment which he has lost or to avoid its execution.

24. The rationale discussed above should guide the approach to be taken by the bankruptcy court when a judgment debtor opposes a petition on the ground that he challenges the judgment debt.

25.1 If the judgment 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 bankruptcy court maystay the hearing of the petition to await the result of the application or appeal.

25.2 However, the bankruptcy court need not do so in every case. It may refuse to stay the petition and may proceed to make a bankruptcy order if the judgment debtor fails to satisfy the court that he has a reasonable prospect of succeeding in the application to set aside or the appeal (Watts v London Borough of Newham [2009] EWHC 377 at [53]). Put another way, an application to set aside or an appeal falling short of that standard would not be a viable or bona fide one, and the judgment debtor would have failed to rebut the prima facie evidence of indebtedness…

…

27. Where the judgment debtor has already failed in his application to set aside the judgment …on substantive grounds at the time of the petition hearing, it would be most unlikely in that situation that the bankruptcy court would find that the judgment debtor could nevertheless rebut the prima facie evidence of indebtedness, unless he could satisfy the court that he could impugn the judgment of the court deciding the setting aside …on the grounds discussed in the paragraph above.” (emphasis added)

14. It is indisputable that the Debt is a Judgment Debt immediately payable and unsecured. It is also indisputable that the Statutory Demand has neither been complied with nor set aside.

15. This court has carefully considered the evidence of the Debtor in his affirmation dated 26 October 2015, in particular, exhibit-5 thereof which sets out his case and his 1-page letter submitted to the court at the hearing.

16. Doing its best to decipher his grounds of opposition, it appears that the Debtor is relying on the following:

(a)   He signed the CRC on 1 June 2010 but he was registered as an insurance agent only on 21 June 2010. He queried whether the CRC was premature and hence irregular.

(b)   Although he did not understand English, he still signed the LOU.

(c)   He signed the LOU in the belief that the Petitioner would not terminate his contract if he could get sufficient business for the company.

(d)   By November 2010, he had already excelled his business target for FYC which reached HK$210,788 - more than two years’ business required by the Petitioner.

(e)   There was misrepresentation of the LOU by the Petitioner’s staff viz Ms Wong Wai Lily at the time he signed it. At the hearing, the Debtor explained that when he signed the document, he was told if he failed to meet his business target, he had to make some refund to the Petitioner. However, he was not told that even when the target was met, he would still have to refund.

(f)   He was not aware of the termination of his contract by the Petitioner in November 2011. He had moved out of his residence in Tun Mun in January 2011.

(g)   He was only aware of the Bankruptcy Petition in about August 2015.

17. Regarding Ground (a), the Debtor’s subjective query of the regularity of the CRC, without more, is not a legally recognized ground to oppose a bankruptcy petition. Nor does it assist the Debtor in disputing the Debt.

18. Grounds (b) and (c) do not assist the Debtor. Once the Debtor signed the LOU (as well as the CRC), he is bound by their terms.

19. Even assuming the Debtor does not read English and he has certain subjective beliefs in what the Petitioner would or would not do, that would not vitiate the validity of the LOU.  In the leading case of Ming Shiu Cheung & Ors v Ming Shiu Sum & Ors (2006) 9 HKCFAR 334 at [84] to [86], the Court of Final Appeal held:

“84. …Reliance is universally placed on signatures appended to documents by persons of full age and understanding as signifying the signatory's assent or adherence to what that document states. Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed. It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.

85. Thus, in Saunders v Anglia Building Society [1971] AC 1004 at 1016, Lord Reid warned against an approach, like that of the Court of Appeal, which inverts the general rule:

‘We find in many of the authorities statements that a man's deed is not his deed if his mind does not go with his pen. But that is far too wide. It would cover cases where the man had taken no precautions at all, and there was no ground for his belief that he was signing something different from that which in fact he signed. I think that it is the wrong approach to start from that wide statement and then whittle it down by excluding cases where the remedy will not be granted. It is for the person who seeks the remedy to show that he should have it.’

86. And in Bank of China (Hong Kong) Ltd v Fung Chin Kan & Another (2002) 5 HKCFAR 515 at p.533, Litton NPJ acknowledged:

‘…the fundamental principle that, generally speaking, when a person signs a legal document, he or she is bound by the act of signature: As a matter of general law, it is no defence to say that he or she did not understand the contents of a legal document; that person takes the chance of being bound by its terms, as he or she can take the simple precaution of not signing until its contents have been fully explained and understood.’ ” (emphasis added)

20. It is important to bear in mind that in order to “disown” a document by relying on the doctrine of non est factum, the person who signed the document must prove that he has taken all reasonable precautions in the circumstances: Saunders v Anglia Building Society supra at 1016 per Lord Reid. In the present case, there is no evidence as to what precautions, if any, the Debtor has taken before signing the LOU.

21. Ground (d) does not assist the Debtor.

22. The actual reason for his termination, according to the Petitioner’s termination letter dated 27 October 2011, was that the Debtor has failed to meet the requirement of “having at least 6 acceptable paid-for New Life/PA cases within each period of 3 consecutive months”. As such, the Debtor’s failure triggered clause 25(a) of the CRC which automatically terminated the contract. Further, under Clause 10 of the LOU, the CRC could be terminated “for any reason” by either the Petitioner or the Debtor. Whether or not the Debtor has met his business target regarding FYC, that would not preclude the Petitioner from terminating his contract for his failure to meet the Petitioner’s other business requirement.

23. Ground (e) does not assist the Debtor either.

24. First, as this court said earlier, the Debtor has indeed failed to meet one of the Petitioner’s business requirements ie “having at least 6 acceptable paid-for New Life/PA cases within each period of 3 consecutive months” which prompted the termination of his contract. Second, the Debtor’s complaint, taken to its highest, was simply that Ms Wong did not explain to him all the possible circumstances under which he might be required to make a refund. That in itself would not vitiate the validity of the LOU.  If the Debtor did not fully understand each and every term of the LOU, he should not have signed it in the first place. Once he had signed it, he is bound by its terms.

25. Regarding Ground (f), this court has serious doubt whether the Debtor was really not aware of the termination of his contract by the Petitioner in November 2011. There is no evidence from the Debtor that he continued to get paid by the Petitioner after that date. Nor is there evidence from him that he continued to turn up for work after that date. Be that as it may, even if the Debtor did not receive the termination letter or notice of his termination in early November 2011, he would, in all probability, have found out about the termination shortly afterwards. Last but not least, clause 25 of the CRC provided for the automatic termination of the CRC without prior notice to the Debtor. Hence, whether or not the Debtor received the termination letter or had notice of its termination in November 2011 is irrelevant.

26. Lastly, Ground (g) does not assist the Debtor. There is no legal requirement that a debtor must have notice of the Petition on the day it was presented ie 30 July 2015. The law only requires service of the Petition and, in the present case, that was done by way of substituted service, as order by Master Hui. The Debtor also admitted he had notice of the Petition in August 2015 and turned up in court to oppose it.

Disposition

27. To conclude, for the above reasons, Mr Chow’s opposition to the Petition fails and this court is satisfied that the Petitioner is entitled to a bankruptcy order.

28. There shall be a usual bankruptcy order against Mr Chow Yuen Chuen and an order nisi that costs of the Petition, including all costs reserved, if any, be to the Petitioner, to be taxed if not agreed.