Re LAM KWOK HING WILFRED

HCB 3560/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 3560 OF 2003

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REASONS  FOR  JUDGMENT

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Introduction

1. This is a creditor's petition taken out on 25 February 2003 for the bankruptcy of the debtor. At the end of the hearing, a usual bankruptcy order with costs was granted against the debtor. The following are the reasons for that decision.

2. The bankruptcy petition was based on a statutory demand dated 15 March 2002 served on the debtor on 3 April 2002 (that is, about 1 year 4 months before the hearing of the petition) in respect of $1,397,895.56. That sum was the balance of the amount due under a settlement agreement dated 27 July 2001 (that is, an agreement made some 1-1/2 years before the taking out of the petition and about 2 years before the hearing before me). The debtor does not dispute that, since about 1 February 2002, he has been in default of making prompt payment in accordance with the settlement agreement.

3. The background leading to the settlement agreement is as follows. The petitioner is a limited company carrying on the business of a securities broker. The debtor was a customer of the petitioner and owed the petitioner $1.7 million as at June 2001 (being the trading balance of the debtor's account with the petitioner). The petitioner commenced an action in the High Court to recover the debt in June 2001. The settlement agreement was reached (as stated above) on 27 July 2001 whereby the debtor was to repay $1.8 million odd by 18 monthly instalments. The action was discontinued in August 2001.

The Debtor's Case in the Petition

4. The debtor does not dispute the debt, or his liability to pay it. However, he contends that no bankruptcy order should be made against him on the following grounds:-

(a)	he has made a number of offers to pay the debt and one of the offers has already been accepted by the petitioner;
(b)	alternatively, the petitioner is estopped from bringing the petition by virtue of the doctrine of promissory estoppel;
(c)	alternatively, the petitioner has unreasonably refused the debtor's offers to pay the debt.

These grounds will be dealt with under separate headings below.

Legal Principles

5. Several provisions of the Bankruptcy Ordinance (Cap. 6) are relevant to this petition. The relevant part of s. 6D(1)(a) provides:-

"The court shall not make a bankruptcy order on a creditor's petition unless it is satisfied that the debt ... in respect of which the petition was presented is ... a debt which, having been payable at the date of the petition or having since become payable, has been neither paid ... nor compounded for ... " (emphasis supplied).

S. 6D(3) provides:-

"The court may dismiss the petition if it ... is satisfied-

(a)	that the debtor has made an offer to ... compound for a debt in respect of which the petition is presented;
(b)	that the acceptance of that offer would have required the dismissal of the petition; and
(c)	that the offer has been unreasonably refused" (emphasis supplied).

6. Further, the following legal principles are undisputed:-

(a)	in determining whether a petitioner's refusal of the debtor's offer is unreasonable, the court has to be satisfied that no reasonable hypothetical creditor in the petitioner's position, and in the light of the actual history, would have refused the offer: Re a debtor (No. 32 of 1993) [1995] 1 ALL ER 628, 639d-f and 640a-b;
(b)	the position should be considered only as between the petitioner and the debtor without regard to the position of other possible creditors or the impact on the entire body of creditors: Re a debtor (No. 32 of 1993), p. 640g;
(c)	in considering the debtor's offer, the petitioner is entitled to have regard to his own interests and is not required to balance his interests against those of the debtor, or to take a chance, or to show patience or generosity, even though some creditors might do so. Acting reasonably is not the same as acting justly, fairly or kindly: IRC v. a Debtor [1995] BCC 971, 974B-F;
(d)	if a debtor wishes his proposals to be looked at with sympathy, it is incumbent on him to be full, frank and open with the petitioner in respect of his statements of his position: Re a debtor (No. 32 of 1993), p. 640a-c;
(e)	in considering a debtor's ability to repay the debt, no regard should be given to future contingencies such as profit or income from future contracts if he is permitted to carry on his business: Re: Phillip and Lion Far East Ltd, CWU No. 130 of 1991 (17 May 1991); Re: Lam Ngai Fung Tony, HCB No. 4641 of 2001 (3 December 2001);
(f)	future income may be relevant only as part of the total circumstances to be considered regarding whether a debtor's offer to secure or compound for a debt has been unreasonably refused by the petitioner: Re: Lam Ngai Fung Tony.

Credibility of Witnesses

7. By reason of the matters set out under the next heading, I prefer the testimony of the petitioner's witnesses to that of the debtor.

Was an Agreement Reached between the Petitioner and the Debtor?

8. The debtor affirmed as follows. Shortly after the settlement agreement, he became aware he would not be able to continue with the instalment payments as agreed. He therefore discussed other solutions with the petitioner. In April 2002, the debtor proposed to transfer his property in Beijing ("the Beijing property") to the petitioner as part payment of his debt. The Beijing property was purchased by the debtor in about 1995 and, according to him, was valued at US$102,000 in April 2002. The debtor met with Mr To and Mr Chan of the petitioner twice for this purpose. The debtor deposed:-

"In or about the end of April 2002 or the beginning of May 2002, Mr Tony To of the Petitioner indicated to me that the proposed transfer of the Beijing Property in part repayment of my indebtedness was acceptable to the Petitioner" (emphasis supplied) (para. 9, the debtor's first affirmation).

The debtor deposed about that aspect in his second affirmation as follows:-

"... My request was for the Petitioner's acceptance of the Beijing Property in part settlement and its indulgence for my repayment of the remaining debt. If the proposed transfer was acceptable to the Petitioner, I proposed to settle the remaining debt by 24 monthly instalments. If the Petitioner was not interested in the transfer ... I was still prepared to charge it to the Petitioner as security ... " (para. 7 thereof);

"After the two meetings as aforesaid, there were some further discussions on the method of transferring the interest in/of the Beijing Property to the Petitioner. The matter was eventually finalized following the approval of my written authorization to my Beijing lawyer in 'LKHW-4'" (emphasis supplied) (para. 8 thereof).

9. The debtor's assertion of an agreement is denied by the petitioner. Mr To said this in his first affirmation:-

"... contrary to the Debtor's allegations ... the Petitioner has neither received the Debtor's letter dated 23rd April 2002 nor have I or any of my colleagues met the Debtor on 24th April 2002 as alleged" (para. 14 thereof);

"... on or about 24th April 2002 after the service of the ... Affirmation on the Petitioner's solicitors, one Ms Annie Wong who represented the Debtor all along, telephoned me to ask if the Petitioner would be willing to accept the assignment of the Beijing Property to reduce the Debt" (para. 15 thereof);

"I replied to Ms Wong that the Petitioner would prefer receiving the proceeds of sale and would only as a last resort consider accepting the assignment of the Beijing Property ... subject to its value to be agreed and its title to be verified" (para. 16 thereof);

"In paragraphs 9, 10, 16, 17, 21 and 25 of his ... Affirmation, the Debtor alleged that I have accepted his proposed transfer of the Beijing Property ... This is untrue" (para. 18 thereof);

"... the Petitioner merely indicated an interest in acquiring the Beijing Property only as a last resort ... The written authorisation ... "LKHW-4"; my suggested wording of the authorisation ... "LKHW-5"; the Debtor's letter to his PRC lawyer dated 13th May 2002 ... "LKHW-7" ... all demonstrate that it was the sale proceeds of the Beijing Property rather than the assignment of property that the Petitioner was interested in and prepared to accept" (emphasis supplied) (para. 19 thereof).

10. The relevant parts of exhibit "LKHW-4" referred to above read:-

"I hereby authorize your firm to pay and release all the balance of the purchase money if the [Beijing property] is sold ... The said balance [after deducting all the necessary expenses] should be made ... payable to [the petitioner] ... ".

Exhibit "LKHW-7" was the correspondence in Chinese between the debtor and his PRC lawyers from 13 May 2002 to 28 May 2002. They referred to the intended sale of the Beijing property. The fax dated 28 May 2002 contains the following:-

"... 知悉已透過代理出售物業 ... 有沒有一些有興趣的買家呢? ... ".

Hence, they indicate the debtor's intention to realise the Beijing property rather than to transfer it to the petitioner.

11. Thus, the debtor's assertion is denied by the petitioner and there is no contemporaneous document in support of it. The documents rather show a different arrangement (or proposal). In these circumstances, I agree with the petitioner that the debtor has not made out this part of his case, namely, there was an agreement regarding the transfer of the Beijing property to the petitioner as part payment of the debt.

12. The debtor also suggests that there was another agreement between him and the petitioner for the Beijing property to be sold and the sale proceeds be used as part-payment of the debt. I also do not find this to be credible in view that there is no supporting contemporaneous document (save perhaps the debtor's authorisation regarding the sale proceeds (which will be dealt with below)).

13. Further, I also agree with the petitioner's argument that the totality of the contemporaneous documents shows that the terms of the parties' discussion relating to the Beijing property changed with time: see para. 8-15, the petitioner's closing submissions. This also supports the petitioner's case that there was no binding agreement.

14. The debtor emphasises the fact that the authorisation given by him in the petitioner's favour ("LKHW-4") has never been revoked by the petitioner. That may well be so. But that fact is insufficient to establish an agreement between the parties. As the debtor himself said in his affirmation:-

"If the Petitioner was not interested in the transfer ... I was still prepared to charge [the Beijing property] to the Petitioner as security ... ".

Promissory Estoppel

15. By reason of the matters set out under the previous heading, I do not find that there is sufficient factual evidence to establish any promissory estoppel on the petitioner's part.

Did the Petitioner Unreasonably Refuse the Offer?

16. Insofar as the debtor should rely on his willingness to transfer the Beijing property and/or its sale proceeds as part-payment of the debt, I do not consider the petitioner to be unreasonable in refusing to accept this offer. The evidence shows that the debtor intended to sell it at least since about May 2002 (if not earlier). There is as yet no indication of a binding agreement regarding its sale. The precise value the Beijing property is also in doubt. On the other hand, despite having entered into the settlement agreement in July 2001, the debtor has failed to perform it by paying the instalments in accordance with its terms as long ago as February 2002.

17. Apart from the offer relating to the Beijing property, the debtor also claims that he would be able to repay the debt from his future income. This part of the debtor's case can be summed up in this way. The debtor deposes that there will be the following sources of income:-

(1)	remuneration from a joint venture project in the mainland estimated to amount to $50 million;
(2)	income from his new employment with Century 21 at $28,000 per month from 1 August 2003 onwards;
(3)	a debt due to a Golden Light Finance Limited ("Golden Light") in which the debtor has an interest would be recovered in a High Court action (HCA No. 1226 of 2003).

18. The income related to the Golden Light debt was first raised when the debtor applied to set aside the statutory demand in April 2002. At the time of the hearing, it was still unknown when the legal proceedings for its recovery would conclude.

19. Information about the remuneration from the mainland joint venture project first appeared in the correspondence from the debtor's solicitors in April 2003. The debtor says a mainland-related company, one Continental Oil and Fuel Company Limited ("Continental Oil") has agreed with a Huizhou Daya Bay General Trading Company Limited ("Daya Bay Trading") whereby the two would form a joint venture company ("the JV company") to acquire a Guangdong Daiyabay Yue An Oil and Chemicals Limited ("Yue An") in the mainland. In addition, the debtor deposed (and repeated during the hearing) that he had entered into an agreement with Continental Oil on 10 April 2003 under which he would be entitled to 5% of the issued share capital of the JV company.

20. To sum up, I agree with the petitioner's observations regarding this aspect:-

(a)	the debtor is one of the shareholders of Continental Oil;
(b)	the debtor's entitlement to the shares of the JV company depends on a number of conditions provided for in the various agreements relating to the joint venture. It appears that a number of conditions have yet to be fulfilled;
(c)	the debtor has introduced a third party which was already known to the petitioner in relation to another mainland project referred to by the debtor earlier. The petitioner notes that nothing of substance was heard about that project;
(d)	the value of the 5% share in the joint venture company is uncertain.

The petitioner contends it could reasonably conclude that there is no satisfactory proof that income would be available to the debtor at any definite time in future.

21. The debtor fairly accepts in his closing submissions (at para. 17) that the prospective income set out at sub-para. (1) and (3) above is not readily available for repayment. He argues, however, that there is abundant documentary evidence in support and this shows the joint venture project has been progressing smoothly.

22. Whether there is substance in the debtor's last argument is irrelevant. What is crucial is whether the petitioner has been unreasonable in refusing this offer. Taking everything set out above into account, the petitioner could not be said to be unreasonable in refusing this offer (whether on its own or together with the other offers).

23. Finally, the debtor says that he has been employed with effect from 1 August 2003 at $28,000 per month. The petitioner cannot be faulted in observing that if the debtor uses his monthly income to repay the debt, it will take years for the debt to be fully repaid. In this connection, the petitioner is particularly entitled to take into account the debtor's earlier failure to perform his obligations under the settlement agreement. There are also other substantial claims against the debtor amounting to over $45 million: see para. 41(3), the petitioner's closing submissions.

24. The petitioner also mentioned other relatively small sums offered by the debtor, such as the refund of his professional indemnity insurance of $90,000. I agree with the petitioner that even if these are taken into account, the debtor's offers can still be reasonably refused.