RE KOK HIU PAN

HCB 5332/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPCTY PROCEEDINGS NO. 5332 OF 2000

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J U D G M E N T

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1. This is a petition for bankruptcy brought by the Wing Lung Bank Ltd on the basis of a judgment debt in the sum of HK$41,604,791.70. The debt is not disputed by the debtor, Kok Hiu Pan. The only ground of opposition is that the petitioner has failed to establish any one of the jurisdictional requirements in section 4(1) of the Bankruptcy Ordinance, Cap. 6. If this were correct, the court would have no jurisdiction to make a bankruptcy order against the debtor.

2. Section 4(1) of Cap. 6 provides as follows:

"A bankruptcy petition shall not be presented to the court under section 3(1)(a) or (b) unless the debtor -

(a) is domiciled in Hong Kong;

(b) is personally present in Hong Kong on the day on which the petition is presented; or

(c) at any time in the period of 3 years ending with that day -

(i) has been ordinarily resident, or has had a place of residence, in Hong Kong; or

(ii) has carried on business in Hong Kong."

3. The petitioner does not seek to establish any of the requirements in section 4(1)(a) or (b). Of the requirements in (c), it is the petitioner's case that the debtor has been ordinarily resident in Hong Kong or that he has carried on business in Hong Kong at any time in the period of three year ending with the day on which the petition was presented, i.e. from 20 December 1997 to 19 December 2000. It is not alleged that the debtor has had a place of residence in Hong Kong during the relevant period.

4. I set out the background and the relevant matters not in dispute as follows.

The background

5. The debtor was born in Guangzhou, China in 1966. He completed his secondary education there. He is not married and his family members live in government quarters at the Guangzhou Baiyun Airport. In 1995, he worked in Shenzhen and came to know one Ma Ka Yan ("Ma") and Lau Sai Leung ("Lau"). Through them, the debtor obtained employment with a subsidiary of the state corporate enterprise of the Hainan Province Industrial Department ("the Hainan subsidiary"). He was appointed the general manager of the Hainan subsidiary.

6. The Hainan subsidiary and related entities in Hainan operated their business in Hong Kong through two Hong Kong companies, Sino Senior Ltd ("Sino Senior") and Sino Senior Engineering Ltd ("Sino Senior Engineering"). Ma and Lau were the directors of these two companies. In 1996, the Hainan subsidiary and two related entities acquired the shares in Vankin Investments Ltd ("Vankin") through Sino Senior and Sino Senior Engineering, and the debtor was appointed a director of Vankin. His salary as a director of Vankin at that time was HK$20,000.00 a month. Vankin's only business in Hong Kong was to develop a site at No. 4 to 6, Hampshire Road, Kowloon Tong, Kowloon. Vankin shared the same office in Hong Kong with Sino Senior and Sino Senior Engineering at the Concordia Plaza, 1 Science Museum Road, Tsimshatsui East, Kowloon.

7. In early 1996, the debtor first came to Hong Kong on the business of the Hainan subsidiary, travelling on a two-way permit. In November 1996, his employer obtained for him a Hong Kong Identity Card to facilitate his travelling to Hong Kong. His duty was to attend meetings here and supervise the works of Vankin in developing the site. He would then return to China to report to the management in Hainan of the progress. Apart from that, he also escorted and entertained customers of his employer when they visited Hong Kong.

8. On 24 October 1997, Vankin executed a loan agreement with the petitioner to obtain facilities from the latter to the extent of HK$71,250,000.00. On the same day, a corporate guarantee was given by Sino Senior and Sino Senior Engineering to the petitioner to guarantee the liability of Vankin under the loan agreement and a personal guarantee was given by Ma, Lau and the debtor to the petitioner, jointly and severally, for the same purpose. The loan agreement and the two guarantees were the subject of the proceedings brought by the petitioner against the three companies and the three guarantors in High Court Action No. 10038 of 1998 on 19 June 1998 when there was default in payment of Vankin.

9. By a facility letter dated 23 May 1997 from the petitioner to Sino Senior, the petitioner granted facilities to the latter to the extent of HK$55 million. On 24 October 1997, a corporate guarantee was provided by Sino Senior Engineering and Vankin to the petitioner to guarantee the liability of Sino Senior under the facility letter and a personal guarantee was provided by Ma, Lau and the debtor to the same effect. These documents formed the subject matter of the proceedings brought by the petitioner against the three companies and the three guarantors in High Court Action No. 10039 of 1998 on 19 June 1998 when Sino Senior defaulted in payment.

10. All the defendants in the two actions filed their defence. On 9 November 1998, summary judgment was entered by a Master against all the defendants in High Court Action No. 10038 of 1998 in the sum of HK$39,027,731.10 and in High Court Action No. 10039 of 1998 in the sums of HK$30,068,726.64 and US$2,716,982.85. The petitioner then brought a mortgage action to obtain possession of the property in Kowloon Tong. An order for possession was made and this property was sold in 1999 and the proceeds were applied to reduce the entire judgment debt in High Court Action No. 10038 of 1998 and part of the judgment debt in High Court Action No. 10039 of 1998. On 29 May 2000, the petitioner issued a statutory demand against the debtor for the aforesaid sum of HK$41,604,791.70, being the unpaid balance of the judgment debt in High Court Action No. 10039 of 1998. The statutory demand was served on the debtor by advertisement in a newspaper and by post on 19 June 2000.

11. On 12 June 2000, all the defendants in the two actions filed a Notice of appeal in each against the decision of the Master giving summary judgment on 9 November 1998. The Notices of appeal were struck out on 4 December 2000 for lack of merits and unexplained delay in bringing the appeal.

12. On 18 December 2000, Sino Senior, Sino Senior Engineering and Vankin were ordered to be wound up by the court on the petition presented by the petitioner in July 2000.

13. On 19 December 2000, the petitioner presented a petition for bankruptcy against the debtor.

The debtor's evidence

14. The debtor has filed three affirmations in these proceedings and was cross-examined on them. In addition, the petitioner has placed before the court four affirmations made by the debtor in High Court Action No. 10039 of 1998 to discharge a prohibition order made against him on 29 December 2000 and to comply with an order made by a Master on 17 January 2001 on the petitioner's application for examination of debtor. The petitioner relied on these additional affirmations to show that there were many inconsistencies in the debtor's account in these proceedings and the affirmations he had made in the earlier proceedings.

15. I turn to examine the debtor's evidence.

16. The debtor stated that since 1998, the business of Vankin "virtually ceased" and "[he has] not been with Vankin since middle of 1998." I am prepared to accept the first part of the statement as true and correct. As mentioned earlier, Vankin's only business in Hong Kong was to develop a property in Kowloon Tong and it would appear from the writs issued by the petitioner in June 1998 that Vankin and its associated company, Sino Senior, had defaulted in payment by mid 1998 and the development of the property was not completed due to the lack of funds. I am not, however, prepared to accept the latter part of the debtor's statement for these reasons. Firstly, he remained a director of Vankin until it was wound up in December 2000. On 26 June 2000, Vankin filed a notification of changes of secretary and directors at the Companies Registry giving a change of address of both the debtor and Lau to an identical address in Shenzhen. Secondly, the debtor had filed tax returns with the Inland Revenue Department for the years of 1997/98 to 1999/2000 in which it was stated that he was employed by Vankin at a salary. In the last tax return, it was stated that he was employed during April 1999 to March 2000 at a total salary of HK$144,000.00. The debtor claimed that he was not paid any salary in fact and what were stated in the tax return were merely the sums "payable" to him, "in consideration that [he] remained a director of [Vankin]". I do not accept his evidence here. It is clear from the notices of assessment and demand for tax that the debtor had been paying tax on the salaries as stated in his tax returns. It is incredible that he should be doing so if he had not in fact received any payment of wages from Vankin down to 2000.

17. The debtor said that he has been living in an address in Shenzhen (not the address in Shenzhen as reported by Vankin to the Companies Registry in June 2000) since 1999 and that this address is a staff quarter provided to him by his present employer, a Shenzhen company known as Begonia Health Industry Co. Ltd ("Begonia"). He has produced a business licence issued by the Shenzhen authorities to Begonia showing that its legal representative was a Mr Zhu. He also produced an employment contract he had entered into with Begonia by which he was employed to promote the business of Begonia from August 1999 at a monthly salary of RMB7,000.00. Begonia has no office in Hong Kong. One of the duties of the debtor was and is to accompany the customers of Begonia to Hong Kong for shopping and meals. The debtor would pay for the expenses with one of his own credit cards and claim reimbursement from Begonia. I accept his evidence on the above matters.

18. The debtor has held two credit cards issued in Hong Kong and he has maintained three bank accounts with the HSBC in Hong Kong, being a savings account, a current account and a foreign currency account. The bank statements of the current account were sent to the office address of Vankin at Concordia Plaza initially. As from January 2000, the statements were sent care of the HSBC Centre in an address in Kowloon because the address of the account holder was "unknown". The credit card statements for the relevant period were sent to the address of Vankin at Concordia Plaza.

19. It was put to the debtor in cross-examination that Begonia was related to Vankin, Sino Senior and a company known as Dong Feng Investment Ltd, which shared the same address as Vankin and Sino Senior. This was denied by the debtor. There is no or no sufficient evidence for me to draw the inference suggested by the petitioner.

20. The movement records of the debtor were obtained from the Immigration Department and the number of days and nights he had spent in Hong Kong between December 1997 and December 2000 were as follows:

1997	December: 10 days, 4 nights
1998	January: 9 days, 7 nights
	February: 7 days, 4 nights
	March: 11 days, 6 nights
	April: 6 days, 3 nights
	May: 9 days, 1 night
	June: 4 days, no overnight stay
	July: 8 days, 2 nights
	August: 8 days, 4 nights
	September: 5 days, 2 nights
	October: 5 days, 3 nights
	November: 4 days, no overnight stay
	December: 7 days, 1 night (Total for 1998: 83 days, 33 nights)
1999	January: 3 days, 2 nights
	February: 7 days, 2 nights
	March: 6 days, 1 night
	April: 4 days, no overnight stay
	May: 2 days, no overnight stay
	June: 3 days, no overnight stay
	July: 2 days, no overnight stay
	August: 5 days, 2 nights
	September: 2 days, no overnight stay
	October: 4 days, 1 night
	November: 7 days, 3 nights
	December: 5 days, no overnight stay (Total for 1999: 50 days, 11 nights)
2000	January: 4 days, 1 night
	February: 4 days, 1 night
	March: 4 days, no overnight stay
	April: 3 days, no overnight stay
	May: 4 days, no overnight stay
	June: 1 day, no overnight stay
	July: 3 days, 1 night
	August: 4 days, no overnight stay
	September: 4 days, no overnight stay
	October: 5 days, no overnight stay
	November: 3 days, 1 night
	December: 4 days, 1 night (Total for 2000: 43 days, 5 nights)

21. The debtor claimed that whenever he was required to stay overnight in Hong Kong, he would "invariably" stay in a hotel because he knew that his stay would be short and he would return to Shenzhen, where he was living in a friend's property before he was provided with staff quarter when he was employed by Begonia. He has obtained the guest records of the three hotels he had stayed during the three-year period in question. One of the hotels has not retained the guest records for 1997 and 1998 and records are available only from 1999. Matching the hotel guest records with the movement records, it could be seen that two nights in 1997 were not accounted for, eight nights in 1998 were not accounted for, and four nights in 1999 were not accounted for. These discrepancies could be due to the non-availability of the records of one hotel for 1997 and 1998. The debtor stated that there were occasions when he returned to China early in the morning and did not stay in any hotel, so that could also be a reason for the discrepancies.

22. I accept the debtor's evidence that by and large, he had been staying in one of three hotels when he stayed overnight in Hong Kong. I also accept his evidence that on all the occasions he had come to Hong Kong within the relevant period, he had done so on business, initially for the Hainan subsidiary and Vankin, and since August 1999 for Begonia and that the hotel charges were paid for by his employer.

23. The movement records only gave the date of arrival in Hong Kong and the date of departure. There was no indication as to how long the debtor had stayed for a day visit. The debtor claimed that very often, he stayed only "for a few hours in one day" as he would accompany customers for a short trip to Hong Kong for shopping and meals and escort them back to China the same day. I see no reason to reject his evidence on this.

24. I should mention that there was some suggestion in the petitioner's affirmation that the debtor might not have been staying in hotel and that he has had a place of residence in Hong Kong. The petitioner pointed to the annual returns filed by Vankin in which various addresses in Hong Kong were given as the debtor's address: Nassau Street, Mei Foo Sun Chuen in 1997, Lai Wan Road, Mei Foo Sun Chuen in 1998 and Whampoa Garden in 1999. Further, in the tax returns for 1997/98 and 1998/99 filed by the debtor, he had provided as his "residential address" the address in Nassau Street, Mei Foo Sun Chuen. This address was also given as his address in the guarantee he executed in favour of the petitioner in October 1997 to guarantee the indebtedness of Sino Senior.

25. The debtor explained that these Hong Kong addresses in Mei Foo and Whampoa Garden were staff quarters provided by the companies and that Lau had occupied the property in Mei Foo and Ma had occupied the property in Whampoa Garden. He did not reside in these properties at any time and it was the company secretary who had used the address of one of the staff quarters in reporting his address in the annual returns. Further, the Shenzhen address reported to be his address and Lau's address in the notification of changes filed with the Companies Registry in June 2000 was also a staff quarter provided to Lau and he did not live there but was residing in the staff quarter provided by Begonia.

26. I do not regard the above explanation as entirely satisfactory. However, the fact remains that the movement records and the hotel guest records showed that the debtor had been staying in hotels during most of his overnight stays in Hong Kong. I think it is prudent for the petitioner to abandon the earlier allegation that the debtor has had a place of residence in Hong Kong.

Was the debtor ordinarily resident in Hong Kong at any time within the relevant period

27. It is a question of fact and degree if the debtor has been ordinarily resident in Hong Kong within the relevant period. In deciding this question, I should have regard to the ordinary and natural meaning of the expression "ordinarily resident". Although both sides have referred me to a number of authorities, I was not referred to the decision of the House of Lords in R v Barnet London Borough Council, Ex p. Shah [1983] 2 AC 309. In that case, Lord Scarman accepted that authoritative guidance of the natural and ordinary meaning of this expression had been given by the House of Lords in the two tax cases in 1928, being Levene v Inland Revenue Commissioners [1928] AC 217 and Inland Revenue Commissioners v Lysaght [1928] AC 234. He rejected the submission that these two tax cases were authority only for a special meaning limited to the Income Tax Acts, because the true reading of the speeches showed that the House had decided "to construe the words in their tax context as bearing their natural and ordinary meaning as words of common usage in the English language" (at 341H). Thus, unless it could be shown that the statutory framework or the legal context in which the words are used requires a different meaning, one should follow the authoritative guidance given to the expression in the two tax cases (at 343G to H).

28. I set out the relevant speeches in Levene, Lysaght and Barnet L B C on the meaning of this expression:

"I think that [ordinary residence] connotes residence in a place with some degree of continuity and apart from accidental or temporary absences." (Levene, supra at 225, per Viscount Cave LC)

"... the word 'ordinarily' may be taken first. The Act on the one hand does not say 'usually' or 'most of the time' or 'exclusively' or 'principally' nor does it say on the other hand 'occasionally' or 'exceptionally' or 'now and then', though in various sections it applies to the word 'resident', with a full sense of choice, adverbs like 'temporarily' and 'actually'. I think the converse to 'ordinarily' is 'extraordinarily' and that part of the regular order of a man's life, adopted voluntarily and for settled purposes, is not 'extraordinary'." (Lysaght, supra at 243, per Viscount Sumner)

"... ordinarily resident means in my opinion no more than that the residence is not casual and uncertain but that the person held to reside does so in the ordinary course of his life." (Lysaght, supra at 248, per Lord Buckmaster)

"... in their natural and ordinary meaning the words mean 'that the person must be habitually and normally resident here, apart from temporary or occasional absences of long or short duration.' The significance of the adverb 'habitually' is that it recalls two necessary features mentioned by Viscount Sumner in Lysaght's case, namely residence adopted voluntarily and for settled purposes." (Barnet L B C, supra at 342D to E, per Lord Scarman)

29. Having regard to the ordinary and natural meaning of this expression, I reject the submission of Mr Thomas Au, who appeared for the petitioner, that as section 4(1)(c) provides that ordinary residency may be established "at any time" within the relevant three-year period, a mere transient or even fortuitous presence of the debtor in Hong Kong would suffice and that the duration of the residence need not be substantial or sufficiently substantial.

30. Mr Au has placed particular reliance on two authorities in which the court examined a similar provision under the Bankruptcy Acts of 1883 and 1914. They are In re Charles Bright (1901) 18 TLR 37 and (1903) 19 TLR 203 and In re Brauch (A Debtor) [1978] 1 Ch. 316. The only difference in the old English sections was that the ordinary residence of the debtor must be within a year before the presentation of the petition, not within three years as amended in the Insolvency Act 1986. However, I do not think this should make any material difference to the approach and determination of the question of ordinary residence by the court.

31. In In re Charles Bright, the debtor had resided in England for 242 days during the one-year period before the presentation of the petition. He went to England for the purpose of conducting some litigation and stayed in various hotels. It was held that he was ordinarily resident and Sir Henn Collins M R had this to say at 204:

"It was shown that for only three months during the year in question was the debtor continuously absent from London. During the rest of the period he was in London for a definite purpose which made it necessary, or at any rate, convenient, that he should be there, and though he made occasional excursions to the Continent the central place of his dwelling was in London ... It was contended that the debtor could not be said to have 'ordinarily resided' in London, because his place of dwelling was in one or more hotels, and that unless it was shown that he paid for his rooms whether he occupied them or not, he could not be said to reside in them. ...The question was not whether it could be said of a man at large that he was ordinarily resident in England. The Court was dealing only with the period of a particular year and that would cover the case of a man whose domicile was elsewhere. A long sojourn must not therefore be taken to be a sine qua non. There must, of course, be some duration, though not necessarily a very long one. Two or three days would not be sufficient. The question was one of fact. Various elements must be taken into consideration, and the purpose for which the man was here was one of the factors to be taken into account. If the man was here for a particular purpose which could not conveniently be disposed of without his presence, and for a substantial time, and he had during that time been substantially resident in England, then it was a question of fact whether he had within the meaning of section 6 'ordinarily resided' in England."

32. In In re Brauch, the debtor, who did not have an English domicile, worked from an office in the Channel Islands and an office in London, spending more time in England than in the Channel Islands, often staying overnight, sometimes with friends and sometimes in hotels. It was held by the English Court of Appeal that the registrar was justified in holding that the debtor was ordinarily resident in England, notwithstanding that the petitioner was not able to specify the address or addresses at which the debtor had spent the nights as the court was satisfied that the debtor was on business when he was in England and that the proportion of his time so spent was "sufficiently substantial". Members of the Court of Appeal had this to say:

"There are in the passage I have read a number of crucial findings of fact, first, that the debtor was certainly not coming here as a casual visitor, secondly, that he was spending the nights in England, thirdly, that he was here on business and fourthly, that the proportion of his time so spent was sufficiently material." (at 334B, per Goff LJ)

"If the evidence satisfies the court that the debtor has lived in England for a sufficiently substantial period in a manner or for a reason inconsistent with his presence in the country being of a purely transitory character, I can see no reason why the court should be precluded from finding that he ordinarily resided here within the meaning of section 4(1)(d) merely because the evidence does not disclose where in England he was living." (at 337A to B, per Buckley LJ)

33. I have no problem with applying the above statements in In re Charles Bright and In re Brauch to the present situation. I do not think anything that was said in those two decisions was in any way inconsistent with the ordinary and natural meaning of the expression "ordinarily resident" following the guidance given in the House of Lords decisions. Whether the debtor has spent a sufficiently material or substantial proportion of his time in this jurisdiction is of course a question of fact and degree.

34. On the evidence before me, I do not think the debtor has spent a sufficiently material proportion of his time in Hong Kong within the relevant period. It is not simply a question of counting the number of days and nights, although it is one of the matters I have considered in that the debtor has spent a total of 186 days and 53 nights in Hong Kong out of 1,096 days during the relevant period. I have looked at the entire picture, I have noted the decreasing number of days and nights over the relevant period, that a relatively small proportion of his stay was overnight, that he had no fixed place of residence on the occasions he spent the night in Hong Kong and I have taken into account that on the day visits the debtor had only stayed for a few hours. On this basis, I find that he did not spend a sufficiently substantial proportion of his time in Hong Kong.

35. The above finding should be considered with another factor being the purpose of the debtor in coming to Hong Kong (that he was not a casual visitor and was here on business) and other factors that may establish a link with Hong Kong, namely, that he was employed by a Hong Kong company and was paying tax in Hong Kong for a substantial part of the relevant period; that he was issued with a Hong Kong Identity Card; that he held credit cards issued in Hong Kong and maintained three accounts with a bank in Hong Kong. Looking at all these factors in the totality and giving such weight as is appropriate to each of these factors in the particular circumstances here, I am not satisfied that the petitioner has made out a case that the debtor was ordinarily resident in Hong Kong within the relevant period in the sense that for a particular period which was not an insubstantial proportion of his time, he had adopted Hong Kong as his place of residence for a settled purpose as part of the regular order of his life. Hence, the petitioner's reliance on this requirement in section 4(1)(c)(i) fails.

Whether the debtor has carried on business in Hong Kong within the relevant period

36. On the evidence, I am not satisfied that the debtor had an interest in Vankin or Sino Senior. I find that he was merely an employee nominated by his employer, the Hainan subsidiary, to take up the position of a director in Vankin at a salary. I further find that the debtor did not take part in the decision making of Vankin and that he had merely carried out orders of his superiors, Ma, Lau and the management in Hainan.

37. In In re Brauch, it was held that section 4(1)(d) of the Bankruptcy Act 1914 did not apply to a person who was running his company's business even though he be the sole beneficial shareholder and in complete control and that to come within the section, it must be established that the debtor was conducting a business of his own, separate and distinct from his company's business (at 328F to G, 336E to G). Mr Au did not dispute the correctness of this proposition.

38. There is simply no evidence for me to find that the debtor has carried on a business of his own that was separate and distinct from the business of Vankin and its associated companies. The petitioner also fails to establish the requirement in section 4(1)(c)(ii).

Conclusion and orders

39. As the petitioner has failed to establish any one of the requirements in section 4(1) to found jurisdiction, the petition must be dismissed. I make an order nisi that the petitioner is to pay the debtor's costs and the Official Receiver's costs of these proceedings and that the Official Receiver's costs be paid out of the petitioner's deposit.