RE SY CHIN MONG, STEPHEN

HCB 5784/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 5784 OF 2013

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J U D G M E N T

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Introduction

1.  This is a bankruptcy Petition (“Petition”) brought by Mr Wang Shui Chung Patrick (“Petitioner”) against Mr Sy Chin Mong, Stephen (“Mr Sy”) on 25 July 2013. 

2.  The Petition is based on Mr Sy’s non-compliance with a Statutory Demand dated 9 July 2012 (“Statutory Demand”) and served on him on 12 September 2012. The Statutory Demand was founded on a debt of over HK$120 million (“the Debt”) pursuant to a Settlement Agreement concluded in July 2009 between the Petitioner and Mr Sy (“Settlement Agreement”).  On 28 September 2012, Mr Sy applied to set aside the Statutory Demand on the grounds inter alia that there was a serious and bona fide dispute over the terms of the Settlement Agreement, in particular, the term set out at paragraph 8(c) of the Statutory Demand (“paragraph 8(c)”), which rendered the amount of the Debt uncertain, but without success - his application was dismissed by Deputy High Court Judge Le Pichon, for reasons explained in a Judgment dated 28 May 2013 in HCSD 30 of 2012 (“Judgment”).

3.  The Petition is opposed by Mr Sy on the basis that the Debt is bona fide disputed on substantial grounds. A comparison of his affirmation in opposition to the Petition (at paragraph 5) with his previous affirmation in support of the application to set aside the Statutory Demand (at paragraph 6) reveals that Mr Sy is relying on the same arguments as those before Deputy High Court Judge Le Pichon and rejected by her Ladyship. 

Background

4.  The background of the case has been fully set out in the Judgment and shall not be repeated here.

5.  For the present purpose, I shall highlight the following paragraphs in the Judgment.

“11. Mr Wang’s version of the terms of the Settlement Agreement is spelt out in § 8 [of] the statutory demand:

‘(a) The Creditor be at liberty to sell 100,001,000 shares in Bel Global transferred to him.

(b) You will transfer another 100 million shares in Bel Global to the Creditor in early August 2009.

(c) Your liability to the Creditor would be calculated by reference to the share prices of Bel Global as of the close of market on 31 August 2009 ie HK$140 million minus the value of the Bel Global shares transferred by you to the Creditor (totalling 200,001,000 shares) as of the close of market on 31 August 2009.

(d) You would pay an amount of HK$10 million to the Creditor by end August 2009.

(e) If there is any further outstanding amount owed by you to the Creditor, then you shall settle such a liability by payments equal to 30% of such outstanding amounts every six months, until such liability is full (sic) discharged.

(f) You would make full repayment within 2 years.  Interest will be charged at 6% per annum.’

12. It is common ground that under paragraph (d), to date, only HK$900,000 has been paid.  The balance of HK$9.1 million remains outstanding.

…

18. In my view, the terms of the Settlement Agreement as accepted by Mr Wang have to be ascertained not only from the letter of 3 June 2010 [sic] but also the e‑mail correspondence and the telephone conversation as reflected in that correspondence and the 6 July letter.

19. It is clear from the sequence of events recited above that following the ‘offer’ of 3 June 2009, the parties entered into negotiations, albeit via their agents.  In my view, the terms agreed through those negotiations and accepted by the parties expressly or implicitly must form part of the Settlement Agreement. Accordingly, the terms of the Settlement Agreement as accepted by Mr Wang have to be ascertained not only from the letter of 3 June 2010 [sic] but also the e-mail correspondence and the 6 July letter in which details of the telephone conversation are recorded.

…

22. But the e-mail of 16 June raised the issue of the date on which the outstanding amount was to be worked out, specifically, whether it was to be as at 31 August 2009.  The answer given on 18 June 2009 confirmed that “the calculation” would be done “as at 31 August 2009”.

23. That exchange evidenced an agreement by the principals through their duly authorized agents that the reckoning of the outstanding amount would take place on 31 August 2009.  So even if the date of calculation was unclear in the letter of 3 June, the proposal by Mr Wang that it should be as at 31 August 2009 was accepted and confirmed.  In any event, Mr Sy did not protest after receiving Mr Wang’s letter of 6 July 2009.

…

26. What could be said to be ‘new’ in paragraph (c) is the phrase “close of market”.  Obviously the value of the Bel Global shares was an indispensable component in the reckoning or calculation of the amount outstanding.  But as those shares are publicly traded, their market value on any trading day could fluctuate from minute to minute.  It is therefore a matter for debate whether the price is to be ascertained at the close of market or is to be ascertained at a different time on that day or by adopting the average price on that day. In the absence of evidence that the price of the shares did not fluctuate at all on that day, I am prepared to accept that there is a serious dispute concerning the terms of paragraph (c).”

6.  In the Statutory Demand, the Debt was calculated as follows:

Discussion

Legal principles

7.  I shall first remind myself of the applicable legal principles.

8.  In order to successfully oppose the Petition, the debtor has to show a “bona fide dispute on substantial grounds, by sufficient 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 p 47 para. 6A.10; ICS Computer Distribution Ltd. [1996] 1 HKLR 181.

9.  Where an issue has been properly ventilated at the stage of the application to set aside the statutory demand, and has been determined by the court at that hearing, a res judicata operates to preclude a debtor from raising, at the hearing of the petition, the same argument which has been determined against him, in the absence of any change of circumstances: Re Choy Wai Bor unrep., HCB 8565/2001, 28 May 2002, Kwan J (as she then was) at para. 30.

10.  Unless a material change of circumstances has occurred since the dismissal of the application to set aside the statutory demand, all that the petitioning creditor has to do at the hearing of the bankruptcy petition is to show that he has made a statutory demand and that the amount of the debt has neither been paid nor secured nor compounded for: Brillouet v. Hachette Magazine Ltd. [1996] BPIR 518, 520, cited with approval by Kwan J (as she then was) in Re Choy Wai Bor supra at para. 26.

11.  Where only part of the petitioning debt is disputed on substantial grounds, the statutory demand still stands and a bankruptcy petition can properly be presented on the basis of the statutory demand, unless the undisputed (or if I may add, indisputable) portion of the debt has been paid: In re a Debtor (No 1 of 1987)[1989] 1 WLR 271 applied in Re a Debtor (No 490SD-1991)[1992] 1 WLR 507.

Application of the legal principles

12.  To begin with, it is accepted by counsel for Mr Sy that, as at the date of this hearing, he has failed to pay the Petitioner an undisputed sum of HK$9.1 million due and owing as early as end of August 2009. This sum forms part of the Debt in the Statutory Demand. On this ground alone, the Petitioner is entitled to a bankruptcy order sought in the Petition.

13.  But that is not all.

14.  In HCSD 30/2012, Deputy High Court Judge Le Pichon essentially held that there was a serious dispute between the Petitioner and Mr Sy concerning the term in paragraph 8(c), but only to the extent that the phrase “close of market” was “new”. Importantly, this court does not read the Judgment as holding that Mr Sy has raised a bona fide and substantial dispute as to the entirety of the term in paragraph 8(c). This is borne out by:

(1) her Ladyship’s rejection of the argument that under the Settlement Agreement, Mr Sy’s obligations were limited to (i) the transfer of 100 million shares in Bel Global to the Petitioner (which he has done) and (2) the payment of HK$10 million to the Petitioner: paras. 13 – 20 of the Judgment;

(2) her Ladyship’s finding that the terms of the Settlement Agreement as accepted by the Petitioner have to be ascertained not only from the letter of 3 June 2009 but also the e‑mail correspondence and the telephone conversation as reflected in that correspondence and the 6 July letter: paras. 18 - 19 of the Judgment;

(3) her Ladyship’s finding that there was an agreement by the parties, through the exchange of emails on 16 and 18 June 2009, that the “reckoning of the outstanding amount would take place on 31 August 2009”: paras. 22- 23 of the Judgment;

(4) her Ladyship’s conclusion that only the phrase “close of market” in paragraph 8(c) was “new” and her acceptance that it was necessary to calculate the “amount outstanding” by reference to the value of the Bel Global shares as at 31 August 2009: paragraph 26 of the Judgment.

15.  This court should also mention that, having read the emails exchanged between the parties’ agents on 16 and 18 June 2009, it is clear to this court that the parties have agreed, as part of the settlement, that any outstanding amount due from Mr Sy to the Petitioner would be calculated by deducting the value of the Bel Global shares in the Petitioner’s hand “as at 31 August 2009” – hence her Ladyship’s conclusion, with which this court entirely agrees, that only the phrase “close of market” in paragraph 8(c) was “new”.

16.  In these circumstances, this court has come to the firm conclusion that, quite apart from the transfer of 100 million shares in Bel Global and the payment of HK$10 million to the Petitioner, the parties have agreed that Mr Sy is also under an obligation to pay the “amount outstanding” after ascertaining the value, as at 31 August 2009, of all the Bel Global shares then held by or to be transferred to the Petitioner totaling 200,001,000 shares. In other words, this court substantially accepts the Petitioner’s submission that the terms of the Settlement Agreement between the Petitioner and Mr Sy are as follows:

(1) The Petitioner was at liberty to sell his existing portfolio of 100,001,000 Bel Global shares.

(2) Mr Sy was to transfer another 100 million Bel Global shares to the Petitioner in early August 2009.[1]

(3) Mr Sy would pay HK$10 million to the Petitioner by the end of August 2009.

(4) Mr Sy’s outstanding liability to the Petitioner would be calculated by reference to the price of the Bel Global shares as at 31 August 2009, ie HK$140 million less the price of the Bel Global shares (totaling 200,001,000 shares), then held by or to be transferred to the Petitioner.

(5) If there was any outstanding liability, Mr Sy would settle it by payments equal to 30% of such outstanding amount every six months, to be fully repaid within two years with interest at 6% per annum.

17.  In so far as counsel for Mr Sy seeks to argue to the contrary, this court has no hesitation in rejecting the argument, both on the basis of the evidence before this court, as well as on the basis of res judicata, since counsel for Mr Sy has not demonstrated to this court’s satisfaction that there was any change of circumstances after the Judgment which renders the doctrine of res judicata inapplicable. 

18.  While there remains a serious dispute between the parties as to how the price of the Bel Global shares on 31 August 2009 should be ascertained, there is now evidence before this court that, on 31 August 2009, the market price of Bel Global shares only fluctuated between HK$0.18 and HK$0.19. 

19.  Mr Man, for the Petitioner, submits that if one calculates the outstanding amount in the way most favourable to Mr Sy ie by adopting HK$0.19 as the share price (instead of HK$0.18 as in the Statutory Demand), the total amount of outstanding principal alone (not to mention interest) would be HK$101 million odd. This is a slightly smaller amount than that claimed in the Statutory Demand ie HK$103 million odd but the difference is immaterial for the present purpose. According to the term of the Settlement Agreement reached in July 2009 as found by this court, Mr Sy is obliged to make full payment of the outstanding sum within two years.  Two years have elapsed and the outstanding principal amount of over HK$101 million together with interest has remained unpaid, as at the date of this hearing.

Conclusion

20.  To conclude, for the above reasons, this court is satisfied that Mr Sy has failed to raise a bona fide and substantial dispute to the bulk of the Debt ie HK$101 million odd as principal plus interest and that Mr Sy is unable to pay his debts. In these circumstances, this court is satisfied that the Petition is well-founded and the Petitioner is entitled to a bankruptcy order against Mr Sy.

Disposition

21.  There will be a bankruptcy order against Mr Sy and an order nisi that costs of the Petition be to the Petitioner.