RE CAI SUI RONG

HCB 2859/2018

[2019] HKCFI 514

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 2859 OF 2018

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REASONS FOR DECISION

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1.  At the end of the hearing I granted the application in part for an order for cross‑examination of Madam Cai Sui Rong (“Cai”) in respect of her affirmations filed in opposition to the bank’s bankruptcy petition against her. These are my reasons for the decision.

2.  The petition, dated 18 May 2018, is based on the outstanding indebtedness, in the amount of over US$35 million and interest of over US$5 million, under a Settlement Agreement dated 31 March 2016 between, among others, Cai and the bank, and a guarantee dated 13 June 2011 executed by Cai.

3.  In her first affirmation dated 15 November 2018, Cai opposes the petition on the grounds that (i) this court has no jurisdiction to entertain the bankruptcy petition because she is not domiciled in Hong Kong and has not had a place of residence in Hong Kong for the three years preceding the petition; (ii) the statutory demand has not been served on her; and (iii) the petition debt is disputed.

4.  In relation to domicile, Cai says she was born and grew up in Guangzhou in 1964.  In around 1998, she “started to be domiciled in Tianjin”.  In around 2005, she decided to acquire permanent resident status in Hong Kong and, for that purpose, to live in Hong Kong between 2005 and 2012 although she also lived and kept a residence in Tianjin at that time.  After obtaining permanent resident status in Hong Kong in 2012, she says she has not lived or kept a place of residence in Hong Kong, and has instead lived only in Tianjin. Cai says that during the three years prior to 18 May 2018 she had only stayed in Hong Kong for 49 days, of which 36 days were overnight stay.

5.  The bank disputes Cai’s denial of Hong Kong domicile.  It says that during the relevant period, she held a Hong Kong Identity Card, served as a director of many Hong Kong companies, owned shares and residential properties in Hong Kong, and resided or had a place of residence in Hong Kong.  Her parents also resided in Hong Kong.

6.  The petition states that Cai has resided at three addresses in Hong Kong: a Bonham Road property, a Tai Hang Drive property and a Lily Street property.  Cai says she has never lived at these addresses.  Of these addresses, the Bonham Road property was stated as the residential address of Cai in the annual returns of several Hong Kong companies of which she was a director.  She says she did not fill in or handle the annual returns herself and did not notice that she had to provide her residential address but thought that she only had to provide a Hong Kong correspondence address.  She says that the Bonham Road property was owned by her father who had leased it to tenants not connected with her.

7.  For its part, the bank contends that Cai’s allegation that she had never resided at the 3 addresses is unbelievable and contradicted by various pieces of evidence the bank has referred to.

8.  As regards the statutory demand dated 21 November 2016, the bank’s solicitors engaged a firm of investigators to act as process serving agent to serve the statutory demand on Cai.  Various steps were taken, as detailed in the evidence, to effect personal service of the statutory demand, though they were unsuccessful.  On 28 December 2016, the statutory demand was published (in Chinese) by advertisement in the daily newspaper Hong Kong Economic Journal.  In February, June and September 2017 respectively the bank’s solicitors wrote to the solicitors firm of Anthony Siu & Co who had been acting for Cai in relation to another set of bankruptcy proceedings (HCB 8324/2016) commenced by Societe Generale, Hong Kong Branch, against Cai, referring to the statutory demand and the advertisement on 28 December 2016 and asking for confirmation if they had instructions to accept service on behalf of Cai.  On 5 September 2017, Anthony Siu & Co replied that they did not have instructions to accept service.  In September and November 2017, upon obtaining further information about another residential address and office address of Cai, further steps were taken to effect personal service, again without success.  The letters sent to some of the addresses during the processes (including the Bonham Road property) were however not returned.  In November 2017, the bank’s solicitors also arranged for letters seeking an appointment for service to be sent to four addresses in the Mainland (three in Tianjin and one in Guangzhou) believed to be associated with Cai.

9.  For her part, Cai denies having ever received the statutory demand and says that the first time she was made aware of it was in June 2018 when she received the bankruptcy petition which referred to the statutory demand.

10.  In relation to the petition debt, Cai in effect says that the guarantee was signed by her based on misrepresentation by the bank’s officers as to the scope of the document.  She also says she does not recall signing the Settlement Agreement, nor does she know its contents.  The bank has filed evidence in reply and says that Cai’s allegations are incredible.  It is however unnecessary to set out these matters since it has been made clear that the bank’s application for cross‑examination is confined to (i) Cai’s domicile; (ii) her residence; and (iii) her assertion that she only became aware of the statutory demand in June 2018. 

11.  There is no dispute that the court has power under RHC Order 38 rule 2(3) to order the attendance for cross‑examination of a deponent of affidavit and that, if the person does not attend as required, his affidavit shall not be used as evidence without the leave of the court.  In Re Chow Kam Fai, ex p Rambas Marketing Co LLC [2004] 2 HKLRD 260, where there was also a dispute about the debtor’s domicile and whether he had a place of residence in Hong Kong, Deputy Judge To (as he then was) ordered cross‑examination of the debtor on his affidavits.  On appeal, Rogers VP (with whom Le Pichon JA agreed) said:

“ 12. … As the judge pointed out, the question of domicile is one which involves the determination of the subjective intention of the person involved. Determining that question is a difficult matter. If the court has to do it on the basis of affidavit evidence alone without the benefit of seeing that evidence tested by cross‑examination, it places the court at a disadvantage in determining the facts. … The judge came to the conclusion that there was sufficient to warrant cross‑examination and he held that there was a need for the respondent to attend court for that purpose so that the truth of his affidavit evidence could be tested.

13.   I do not see that the judge can be faulted in this conclusion. Whatever might be said of the strengths or weaknesses of the various points which are made both for and against the conclusion as to whether the respondent had acquired a domicile of choice, clearly there was material for cross‑examination. Looking at it from the point of view of the petitioner, it appears to me that it would have been clearly wrong to have refused cross‑examination.  Given the fact that subjective intention is a highly important ingredient in the question as to whether a domicile of choice has been acquired, and in this case forms the major issue in this regard, if the petitioner were put in the position of having to accept the respondent’s assertions made on affidavit without the possibility of cross‑examination, it would be put at an unfair disadvantage, to say the least.”

12.  As regards place of residence, Deputy Judge To had said (at §22 of his judgment [2004] 1 HKLRD 161):

“ A place of residence is a place where one can live and have resort to as and when he wishes. It needs not be a place where he resides regularly or with any degree of permanency or frequency or for any duration. The deciding factors are the Debtor’s intention and his power to have resort to that address. For similar reasons, it is appropriate that the Debtor should be cross‑examined on his subjective intention.”

13.  In the Court of Appeal, Rogers VP held (at §14) that the judge was also justified in ordering cross‑examination on the question of place of residence, having regard to the fact that a Hong Kong residential address of the debtor had been stated in various corporate filings of companies connected with him.  He held that “the judge was justified in coming to the conclusion that the respondent should explain in person how it came about that he permitted these documents to be filed making those assertions”.

14.  In Re James Henry Ting, ex p Akai Holdings Ltd (in compulsory liquidation) (unrep, HCB 7809/2012, 24 September 2013), Ng J also ordered attendance by the debtor for cross‑examination on his affirmations where there was a dispute as to the debtor’s domicile.

15.  Mr William Wong SC who appeared on behalf of Cai submitted that the decision in Re Chow Kam Fai was a narrow one based on the fact that in that case the burden of proof lay on the debtor since he relied on a change of domicile away from Hong Kong.  I do not think the rationale of the decision was so limited.  The court did not base its decision on the distinction between domicile and change of domicile.  Likewise in Re James Henry Ting the question was simply whether the debtor had adopted Hong Kong as his domicile in the 1980s which turned on his subjective intention when he moved to Hong Kong in 1985.  In the present case Cai has put in evidence to say that despite beginning ordinary residence in Hong Kong in 2005 at the latest and obtaining permanent resident status here in 2012, she had never been domiciled in Hong Kong, that she resided in Hong Kong during those years only for the purpose of obtaining a Hong Kong Identity Card, and that despite Hong Kong residential addresses were stated for her in various corporate filings, she did not have a place of residence in Hong Kong at the material times.  While the discretion of this court is unfettered, I agree with the reasoning in the above cases and take the view that in the circumstances of this case, cross‑examination of Cai in relation to domicile and residence is necessary in the interests of justice for the fair disposal of the bankruptcy petition.  Cai has sought to explain away certain objective circumstances relied upon by the bank and it would only be fair for the bank to have an opportunity to test her explanations in cross‑examination if she continues to rely on that evidence.

16.  Mr Wong submitted, relying on Practice Direction 3.4, at §4, that the general rule is that no cross‑examination on affidavits is allowed in petitions for bankruptcy or winding‑up presented by a creditor.  This is of course generally the case in relation to the dispute over the petition debt or any cross‑claims asserted by the debtor.  In that context, as Harris J said in Re Kwong Ka Wai, ex p Fortis Insurance Co (Asia) Limited (unrep, HCB 7877/2009, 1 April 2010) at §7, the bankruptcy court is not the correct forum for resolving the dispute and that necessarily the existence of factual dispute is highly unlikely to constitute a valid reason for ordering cross‑examination in bankruptcy proceedings.  But the questions of domicile and place of residence which pertain to the jurisdiction of the bankruptcy court are only relevant in this forum.  It seems to me that, for the reasons I have given, it is appropriate to order cross-examination on those limited areas in this case.

17.  As to whether Cai only first became aware of the statutory demand in June 2018, however, I do not think it is an issue that arises on the petition.  The question that is relevant to proper service of the statutory demand, which affects the validity of the bankruptcy petition, is by virtue of rule 46 of the Bankruptcy Rules whether the bank has done all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention, and not whether or not or when the debtor was in fact aware of it.  In my opinion the bank has not established a sufficient purpose for cross‑examination of Cai on the timing of her knowledge of the statutory demand, other than to discredit her.  I am not prepared to allow cross‑examination on that basis.

18.  For these reasons the application was allowed for cross‑examination of Cai on her affirmations in respect of the question of domicile and residence.