RE KAM HUNG CHEUNG

         [English Translation – 英譯本]
HCB 8808/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BANKRUPTCY PROCEEDINGS NO. 8808 OF 2004

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J U D G M E N T

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1. Mr. Kam Hung Cheung (“Bankrupt”) took out a summons on 25 April 2007, applying for the discharge of a bankruptcy order that the court made against him on 1 December 2004.  The bankruptcy order was made pursuant to the debt arising from a judgment made on 20 June 2003 in High Court Civil Action No. 1497 of 2003 (“HCA 1497/2003”).

Seaquest International Development Limited

2. The Bankrupt, one Madam Chan Pui Hung (“Madam Chan”) and one Mr. Li Wo Kam (“Mr. Li”) were the shareholders and directors of Seaquest International Development Limited (“Seaquest”).  The Bankrupt and Madam Chan were the first directors of Seaquest, while Mr. Li joined the company as shareholder and director in 1995 or 1996.  On 14 June 2002, he transferred his shares to Madam Chan and ceased to be a director of the company.     

3. As at 1993, Seaquest had its registered address at Room 712, Nam Fung Tower (formerly known as Wing Shan Tower), 173 Des Voeux Road Central (“Des Voeux Road Central address”).  The registered address was changed in or about 1999 to 8/F, Teda Building, 87 Wing Lok Street, Sheung Wan, Hong Kong (“Wing Lok Street address”), and there had been no further change up to 2003 when Seaquest submitted the last annual return to the Companies Registry. 

4. Furthermore, in the annual returns submitted by Seaquest since 1998, the address of both the Bankrupt and Madam Chan was stated to be Block F, 5/F, Panorama Gardens, 103 Robinson Road, Hong Kong (“Robinson Road address”).

Banking facilities in favour of Seaquest and Deed of Guarantee

5. On 8 October 1996, the Bankrupt, Madam Chan and Mr. Li executed in the capacity as guarantor a deed of unlimited guarantee (“Deed of Guarantee”) with Po Sang Bank, which the Petitioner in the present case was formerly known as.  According to Clause A of the Deed of Guarantee, the Bankrupt and the other two guarantors jointly and severally undertook to pay Po Sang Bank upon demand in writing all sums of money owed by Seaquest to the bank, and no limit was imposed on the guarantors’ liability in that respect.

6. Earlier on, the Bankrupt and Madam Chan executed on 23 September 1994 a similar deed of guarantee with Po Sang Bank for the purpose of securing repayment by Seaquest of debts it owed to the bank as a result of the credit facilities granted by the bank.

7. According to a Letter of Banking Facilities dated 5 October 1999 (“Letter of Banking Facilities” or “Letter”), Po Sang Bank as lender amended, pursuant to the terms of the Letter, the loan facility to be provided to Seaquest in the capacity as a borrower.  Clause 1.1 stipulated that Po Sang Bank would grant to Seaquest a term loan up to HK$4,396,643.58 which would mature on 25 February 2000.  Clause 6(b) stipulated that the Bankrupt, Madam Chan and Mr. Li would jointly and severally guarantee repayment of Seaquest’s debts owed to Po Sang Bank, with the guarantors’ liability to be unlimited.  Clause 16 also mentioned that a Chinese version of the Letter was available for reference.  Seaquest signed at the end of the Letter to indicate agreement with and acceptance of all the terms thereof.  The Bankrupt, Madam Chan and Mr. Li as guarantors also countersigned at the end of the Letter to confirm it.  The three of them also initialled on page 2 of the Letter (i.e. the page that contained Clause 6).

HCA 1497/2003

8. Pursuant to the terms of the Letter of Banking Facilities, Po Sang Bank granted a loan to Seaquest.  Seaquest failed to repay the loan as agreed.  Nor did the guarantors, including the Bankrupt, repay the debt of Seaquest pursuant to the Deed of Guarantee upon demand by the bank in writing.  Therefore, on 28 April 2003 the Petitioner instituted HCA 1497/2003 to seek recovery of the relevant sums from Seaquest, the Bankrupt, Madam Chan and Mr. Li.

9. As far as claim against the Bankrupt was concerned, the solicitors for the Petitioner sent the amended writ of summons by registered mail to the Bankrupt at the Wing Lok Street address and Des Voeux Road Central address.  The staff members of the solicitors’ firm also served the documents on the Bankrupt by inserting them into his letterbox at the Robinson Road address.

10. As Seaquest, the Bankrupt, Madam Chan and Mr. Li failed to give Notice of Intention to Defend, the court entered judgment for the Petitioner on 20 June 2003, and the four defendants including the Bankrupt were ordered to pay the Petitioner HK$2,457,900.27 together with interest on the principal of $2,101,212.29, as well as fixed costs in the sum of $1,745.

11. The Bankrupt neither appealed against the above judgment nor made any application to have it set aside.

Making of the bankruptcy order

12. As the Bankrupt had failed to satisfy the judgment, the Petitioner issued a “statutory demand” against him on 14 July 2003.

13. The staff members of the solicitors’ firm acting for the Petitioner had been to the Wing Lok Street address, Des Voeux Road Central address and Robinson Road address a number of times but never succeeded in serving the statutory demand on the Bankrupt personally.  In the end, the Petitioner caused a notice to be published in the Hong Kong Economic Journal on 30 January 2004, notifying the Bankrupt that a statutory demand had been issued against him.

14. As the Bankrupt still failed to satisfy the judgment and make repayment pursuant to the statutory demand, the Petitioner issued on 6 September 2004 the bankruptcy petition which formed the subject-matter of these proceedings.

15. As the staff members of the solicitors’ firm acting for the Petitioner had been to the Wing Lok Street address, Des Voeux Road Central address and Robinson Road address a number of times but still had failed to serve the petition on the Bankrupt personally, the Petitioner applied to the court for leave to effect substituted service of the petition on the Bankrupt.  Leave was granted and, pursuant to the relevant court order of 12 November 2004, the Petitioner mailed the petition document to the abovementioned three addresses, and on 22 November 2004 caused a notice to be published in the Hong Kong Economic Times, informing the Bankrupt that bankruptcy proceedings against him had commenced.

16. On 1 December 2004, the court made a bankruptcy order against the Bankrupt, who did not attend the hearing.  On 10 December 2004, the bankruptcy order was published in two local newspapers and gazetted.

17. Up to 23 May 2007, the Official Receiver had received in total two proofs of debt.  One of them was issued by the Commissioner of Inland Revenue for a debt in the sum of $220, while the other one was filed by the Petitioner for a sum of $1,728,345.95.

Application for discharge of bankruptcy order

18. On 13 March 2007, the Bankrupt attended the Official Receiver’s Office for the first time for a preliminary interview.

19. On 25 April 2007, the Bankrupt filed a summons with the court, applying for discharge of the bankruptcy order.

20. From the two affirmations filed by the Bankrupt and the statements that he made at the hearing, the grounds of his application can be summarized as follows:

(1)     The Bankrupt had neither borrowed any money nor taken any money from the bank.  He did not owe the bank any money.

(2)     The Bankrupt did not know English and had no idea about the contents of the documents that he had signed at the bank.

(3)     He was told by officers of Seaquest that the debt owed by Seaquest to the bank had been fully settled.

(4)     He had been out of Hong Kong for most of the time since 2000 and had never received any legal document.  He came to know that a bankruptcy order had been made against him only when he unsuccessfully sought to open a bank account in Mainland China.

The applicable legal principles

21. It appears from the arguments put forward by the Bankrupt that his application is probably made pursuant to section 33(1)(a) of the Bankruptcy Ordinance, which provides as follows:

(1)     The court may annul a bankruptcy order if it at any time appears to the court that –

(a) on any grounds existing at the time the order was made, the order ought not to have been made; or

…

22. The relevant decided cases show that, in considering whether to exercise the power under section 33(1)(a), the court should first consider whether there were any grounds on which a bankruptcy order ought not to have been made at the material time when it was made.  If the court does not think that such grounds existed, it cannot invoke section 33(1)(a) to annul the bankruptcy order.  If the court thinks that such grounds existed, it still has to consider whether it should exercise the discretion to annul the bankruptcy order: see Society of Lloyds v. Waters [2001] BPIR 698, 704G-H, and also Artman v. Artman [1996] BPIR 511, 513-514, and Askew v. Peter Dominic Ltd [1997] BPIR 163, 164.  

23. In exercising the discretion under section 33(1), the court has to carefully consider the interests of the creditor, the debtor and the public, and a bankruptcy order will only be annulled under exceptional circumstances.

24. Furthermore, the person applying to annul a bankruptcy order bears the burden of proving that when the order was made there were grounds on which the order ought not to have been made: see OBE Insurance (Hong Kong) Ltd v. Chan Wai Man William, HCB 187/2000.

25. If a bankrupt disputes the debt on which a bankruptcy order is based, he must adduce cogent prima facie evidence to show that the dispute is supported by genuine and good reasons.  Where the debt which forms the basis of a bankruptcy order is a judgment debt, the court will normally not reconsider any dispute on the debt, see paragraph 24 of the judgment in Re Kwong Ngai Ping, HCB 9447/2003.

26. Furthermore, where a bankruptcy order has been made in the absence of the bankrupt, or where the underlying judgment in favour of the creditor has been obtained by reason of the bankrupt’s failure to give Notice of Intention to Defend, then the bankrupt must provide reasonable and credible explanations for his absence or failure to give Notice of Intention to Defend: Re Luk Tsun Yin [2000] 1 HKC 774, 777, and Re Ng Chi Wo, HCB 2819/2003.

Seaquest’s debts and the Bankrupt’s liability

27. The evidence submitted by the Petitioner clearly shows that there was a loan facility arrangement between Seaquest and the bank.  Such evidence also establishes that the Bankrupt, Madam Chan and Mr. Li had jointly and severally provided unlimited guarantees for repayment of the debts owed by Seaquest to the bank.

28. A statement of indebtedness of Seaquest has been attached to the affirmation of Cheng Kwok Leung, filed on behalf of the Petitioner.  The statement shows that as at 20 June 2003, Seaquest owed the bank principal, interest and costs in a total sum of $2,522,336.23.  The statement further shows that on 19 July 2004, Mr. Li as guarantor repaid to the bank a sum of $1,075,758.46.  Therefore, when the bankruptcy order was made (i.e. on 1 December 2004), the debt owed by Seaquest was $1,728,345.95.  Subsequently, on 31 December 2004 Mr. Li made a second repayment in the same amount of $1,075,758.46.  Then, on 14 January 2005, Madam Chan also repaid to the bank a sum of $350,000.  As at 31 May 2007, Seaquest was still indebted to the bank for the sum of $330,641.49.

29. According to Clause 5 of the Letter of Banking Facilities and Clause 5(6) of the Deed of Guarantee signed by the Bankrupt, a certificate produced by an officer of the bank as to the amount owed by Seaquest is conclusive evidence and binding on Seaquest and the three guarantors including the Bankrupt.  Therefore, as far as the debt owed by Seaquest to the bank is concerned, the abovementioned statement constitutes conclusive evidence and is binding on the Bankrupt.  This being the case, the Bankrupt can neither dispute nor deny the fact that Seaquest has not repaid the loan to the bank.  Furthermore, the Bankrupt has never adduced any solid evidence to show that Seaquest is not indebted to the bank.

30. The Bankrupt submits that he was not involved in the actual operation of Seaquest and knew nothing about its financial position and accounts, and that the signatures of the other two shareholders/directors were required before the money in the accounts could be used.  However, these do not constitute a valid ground for rebutting the indebtedness of Seaquest as shown on the statement.

31. The Bankrupt also contends that he had neither used any money of the bank nor borrowed money from it.  However, it is beyond dispute that he had signed the Letter of Banking Facilities and Deed of Guarantee.  As a guarantor in respect of Seaquest’s bank loan, he is liable to repay Seaquest’s debt upon demand of the bank.

32. Therefore, the Applicant’s first ground of application fails.

33. The Bankrupt claims that he did not know English and had no idea about the contents of the documents which he had signed.  However, the Letter of Banking Facilities was available in both Chinese and English versions.  Furthermore, the statement preceding the Bankrupt’s signature was printed in both Chinese and English and expressly stated that the document was confirmed and countersigned by the guarantor.  When the Bankrupt signed the Letter of Banking Facilities, he should have been able to see that statement and should have been aware that he was signing the Letter in the capacity of Seaquest’s guarantor.

34. Furthermore, the Bankrupt has not explained in his affirmation why he signed the Letter of Banking Facilities or the Deed of Guarantee without knowing their contents and under what circumstances he signed those documents.  At the hearing, he said that he signed them only upon the requests of the other shareholders/directors.  If the Bankrupt indeed had no idea about the contents of the documents but did not take any reasonable step to find out their contents and nature, then he would have signed the documents negligently.  As a matter of law, he cannot rely on his lack of knowledge on the contents of the documents as an excuse to free himself from the binding effect of the terms in the documents signed by him so as to exonerate himself from liability under the Deed of Guarantee and the Letter of Banking Facilities.

35. The Bankrupt’s second ground of application fails.

36. Regarding the repayment of the amount owed by Seaquest, according to the statement of indebtedness submitted by the Petitioner, Mr. Li made repayments on 19 July and 31 December 2004 respectively.  On that basis, the Petitioner wrote to Mr. Li on 18 January 2005 indicating consent to release him from liability under the guarantee for Seaquest.  Furthermore, on 11 January 2005 the Petitioner sent a fax to Madam Chan saying that if she paid $350,000 in 7 days, the Petitioner would give its consent to release her from liability under the guarantee for Seaquest and to discontinue the legal action against her.  Madam Chan did pay to the Petitioner $350,000 on 14 January 2005, as a result of which she was released from liability under the guarantee for Seaquest.  Having deducted the above sums, the amount owed by Seaquest as at 31 May 2007 was $330,641.49.  The Bankrupt’s argument that the debt of Seaquest has been fully settled is unfounded.  Nor has he adduced any solid evidence to buttress his argument.

37. In addition, Clause 11(d) of the Deed of Guarantee allows the Petitioner to release the liability of other guarantors under the guarantee without having to inform the Bankrupt or obtain his consent.  Furthermore, the Petitioner’s decision to release the other guarantors’ liability neither affects the liability of the Bankrupt under the Deed of Guarantee nor releases his liability as a guarantor.

38. This being the case, the Bankrupt’s third ground of application fails.

Service of legal documents

39. The fourth ground of the Bankrupt’s application is that he did not receive any legal document in relation to HCA 1497/2003 and the present bankruptcy proceedings.

40. The amended writ of summons (with the statement of claim annexed thereto) in HCA 1497/2003 was served at the Wing Lok Street address, Des Voeux Road Central address and Robinson Road address.  The first and the second addresses were Seaquest’s registered addresses, while the third one was the address which the Bankrupt filed with the Companies Registry through Seaquest.  The Petitioner states that these three addresses were the last known addresses of the Bankrupt, whose evidence does not reveal any other address for contacting or serving documents on him.

41. The Petitioner’s affirmation shows that the legal documents in HCA 1497/2003 were sent to the Wing Lok Street address and Des Voeux Central address by registered mail, and none of these mails had been returned.

42. Furthermore, the Petitioner’s affirmation states that when the process server visited the Wing Lok Street address in July 2003 and September 2004, the people working there confirmed that the Bankrupt worked there.  The Bankrupt has also adopted the Wing Lok Street address as his address in the affirmation that he has filed in the present application.

43. The above evidence and facts show that there was nothing improper for the Petitioner to be satisfied that the Wing Lok Street address, Des Voeux Road Central address and Robinson Road address were the Bankrupt’s last known addresses and to serve the legal documents in HCA 1497/2003 at those three addresses.  It was also reasonable for the Petitioner to believe that the Bankrupt could receive and become aware of the court proceedings and legal documents through those addresses.

44. Turning to the documents in the present bankruptcy proceedings, they include the statutory demand and bankruptcy petition.  Under rule 46(2) of the Bankruptcy Rules, the Petitioner shall take reasonable and practicable steps for the purpose of bringing the “statutory demand” to the debtor’s attention.  Publishing the statutory demand in the newspaper is a form of substituted service which is recognized by legislation.  As was held in Re Lam Lai Wah Susanna [2002] 4 HKC 334 and Re Pang Mei Lan May (unreported) HCB 9118/2004, the question of what constitutes taking of reasonable and practicable steps has to be determined by reference to the particular circumstances of the case, and the court must objectively consider any information of which the Petitioner had actual or constructive knowledge at the time of service.  In the present case, having taken into account the affirmation of the process server, I agree that the Petitioner has taken reasonable and practicable steps to serve the “statutory demand”.

45. In addition, the Petitioner has, pursuant to the Master’s order, effected substituted service of the bankruptcy petition by having it advertised in the newspaper.  The petition was also sent to the abovementioned three addresses, and the documents sent to the Wing Lok Street address have not been returned.  As stated hereinabove, the Petitioner had good reasons to believe that the Bankrupt could through those addresses receive and have knowledge of the documents and proceedings of the bankruptcy case.

46. The Bankrupt has claimed that he has been out of Hong Kong on a long-term basis since 2000.  However, up to 2003 when Seaquest submitted its last annual return to the Companies Registry, the Bankrupt’s residential address was still the Robinson Road address, and in his affirmation in the present application the Bankrupt failed to provide any evidence to support his claim of his long absence from Hong Kong.

47. The Petitioner has also stressed that the Bankrupt had never informed it that he would leave Hong Kong or no longer reside in Hong Kong.  At the hearing, the Bankrupt claimed that the bank very well knew that he was out of Hong Kong but still maliciously instituted legal proceedings and presented the bankruptcy petition against him.  However, there is no factual basis for this allegation.  What the Bankrupt contends is: apart from him, there were other officers at Seaquest, and so had the bank contacted other shareholders/directors, it would certainly have been informed that the Bankrupt was out of Hong Kong.  Besides being purely conjectural, this contention does not form any factual basis of his absence from Hong Kong, let alone show that the bank knew he was out of Hong Kong or maliciously presented the bankruptcy petition against him.

48. All in all, the Petitioner has complied with the relevant legal requirements and duly served the legal documents on the Bankrupt.  His fourth ground of application must also fail.

Conclusion

49. On the above analysis, the Bankrupt does not have any valid ground for seeking annulment of the bankruptcy order.  Accordingly, I dismiss his application by summons dated 25 April 2007.

50. On the issue of costs, there is nothing in the present application which justifies departure from the usual practice that costs follow the event.  Therefore, I also order that the Bankrupt is to pay costs incurred by the Petitioner and the Official Receiver in the present application.  On the basis of his report of 4 January 2008, costs incurred by the Official Receiver are hereby assessed at $20,375.  Costs of the Petitioner are to be taxed by a Master.