Re George Chen Sheng Liang and Another v. L.S. Shum and Others
Read the full judgment text of CACV 24/1970 on BabelCite. This Court of Appeal judgment was delivered on 12 March 1971.
1. George Chen Sheng Liang (hereinafter referred to as "the bankrupt") was sole proprietor of a firm called Wood and Co. which was registered under the Business Registration Regulations on 17th February, 1956. He was also sole proprietor of a firm called Armstrong Builders. The registered address of both firms was Rooms 57-58 Rutton Building, 11 Duddell Street.
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IN THE SUPREME COURT OF HONG KONG APPELLATE JURISDICTION CIVIL APPEAL NO. 24 OF 1970 (On Appeal from a Decision in Bankruptcy No. 31 of 1967) -----------------
----------------- Coram: Full Court (Blair-Kerr, Mills-Owens and Pickering, JJ.) Date of Judgment: 12 March 1971 ----------------- JUDGMENT ----------------- Blair-Kerr, J.: 1. George Chen Sheng Liang (hereinafter referred to as "the bankrupt") was sole proprietor of a firm called Wood and Co. which was registered under the Business Registration Regulations on 17th February, 1956. He was also sole proprietor of a firm called Armstrong Builders. The registered address of both firms was Rooms 57-58 Rutton Building, 11 Duddell Street. 2. In May 1964 Tak Ming Co. Ltd., (hereinafter referred to as "Tak Ming") instituted proceedings (O.J.524/64) against the bankrupt claiming, inter alia, damages for breach of contract. 3. The bankrupt died on 23rd January, 1966 before the action came on for trial. He left a will appointing a Madame Lau as his sole executrix. On 6th July, 1966, the appellants, through their solicitors (Lau, Chan & Ko), wrote to Madame Lau as follows:-
The letter was addressed to Madame Lau at Rooms 57-58, No.11 Duddell Street. She renounced probate the same day (6th July, 1966). 4. On 11th July, 1967, upon the application of Tak Ming, the Official Administrator was appointed to defend O.J. Action 524/64 on behalf of the bankrupt. On 11th September, 1967, judgment was given in favour of Tak Ming; and damages were subsequently assessed at $370,319. 5. On 30th September, 1967 the court made an order for the administration of the bankrupt's estate, and the Official Receiver was appointed trustee. On 6th October, 1967, a notice was published in the South China Morning Post and the Wah Kiu Yat Po to the effect that the order for administration in bankruptcy had been made; and the time and place of the first meeting of creditors was given. 6. The first meeting of creditors was held on 20th October, 1967. Three creditors attended by proxy viz. the Official Administrator who claimed $2,871; Tak Ming who claimed $370,319, and Philip K.H. Wong, Solicitors, who claimed $1,927.20. 7. On 31st October, 1967, Madame Lau lodged a proof of debt. Her allegation was that she had lent $390,425 to the bankrupt. In various letters, commencing with one dated 14th June, 1968, Tak Ming submitted to the trustee that in their view Madame Lau's proof of debt should be rejected. 8. On 12th August, 1968 the trustee wrote to Tak Ming informing them that Madame Lau's proof of debt had been rejected on 29th June, 1968. However, it appears that on 27th July, 1968 the appellants lodged a proof of debt for $850,650.41; and Tak Ming were informed of this fact by the trustee. 9. Tak Ming were extremely suspicious of the appellants' claim. They commenced their own investigations. They had a number of meetings with Mr. L.S. Shum of the Official Receiver's office; and they wrote a number of letters to the trustee. The results of Tak Ming's investigations (which were passed on to the trustee, and subsequently incorporated in an affidavit) show that the partners of the appellants (Van Shung Chong Hong) consist of members of the Yao family - including one Yao Shu Sheng and one Yao Shu Yuen; that Yao Shu Yuen and the bankrupt were shareholders in a company called Van Hing Transportation Co. Ltd.; that the bankrupt and Yao Shu Sheng were the major shareholders in a company called Vantage Godown Co. Ltd. (hereinafter referred to as "Vantage"); and that at all material times Yao Shu Sheng had held at least 65% of the shares of this company. The registered address of Vantage was Rooms 57-58, 11 Duddell Street. 10. In September 1969 the trustee rejected the appellants' proof of debt to the extent of $231,153.36, that is to say the proof was admitted to the extent of $619,497.05. 11. Tak Ming immediately consulted their solicitors; and they called at the offices of the trustee to inspect the documents relevant to the appellants' proof of debt. On 24th November 1969, the solicitors wrote to the trustee as follows:-
12. Tak Ming were saying in effect: "This proof of debt may well be fraudulent; it calls for further investigation". 13. In reply, Mr. Shum said:-
It had been pointed out by Tak Ming that there were no delivery notes "duly receipted by Wood & Co.". Mr. Shum did not specify the nature of the documents on which he relied for his assertion that Wood & Co. had "taken delivery" of the iron bars. Presumably it was the copy invoices. And the fact that the alleged debt had been outstanding since 1963 seems to have been brushed aside in a rather cavalier fashion. One gets the impression that from the beginning Mr. Shum resented any suggestion that he might have come to a wrong decision. 14. On 6th January 1970, Tak Ming gave notice to the trustee and the appellants that the court would be moved on 12th January for an order expunging the appellant's proof of debt. It is common ground that Tak Ming's application was made pursuant to s.83 of the Bankruptcy Ordinance Cap.6 and r.25 of the Proof of Debt Rules made thereunder. 15. The trustee was made 1st respondent in the proceeding and the appellants were made 2nd respondent. 16. The motion came on for hearing before Mr. Justice Briggs on 12th January, 1970. Mr. Shum appeared for the trustee; and Mr. Wei, of counsel, appeared for the 2nd respondent (the appellants in this Court). At that stage the learned judge had before him an affidavit by Mr. Soo, (a member of the firm of solicitors acting for Tak Ming) to which there was exhibited a balance sheet showing the position in regard to the estate of the bankrupt as at 23rd September 1969. This showed that there was a cash balance of $204,449.15 available for distribution as dividend. The affidavit drew the court's attention to the close relationship between Yao Shu Sheng and the bankrupt and the fact that although the alleged debt had been incurred in 1963, there was no evidence that the appellants had made any effort to recover the sum involved from the bankrupt. Paragraphs 9, 10, and 11 read:-
There can be no doubt at all as to the stand taken by Tak Ming. Their submission was that the proof of debt should not have been admitted at all without further investigation; and their primary concern was to have it expunged. 17. Clearly, the learned judge was not in a position to come to any final conclusion on the material before him. Mr. Shum submitted that the "onus" was on Tak Ming to produce all necessary documents and to prove that the trustee had failed to do his duty, otherwise the trustee had "no case to answer". In support of this submission he cited a judgment of Mr. Justice Huggins (not reported) in In re Yick Fat Land Investment Co. Ltd. (Company Winding-up No.4 of 1966). 18. Mr. Wei adopted Mr. Shum's submission; and according to counsel's note of the proceedings in the court below, Mr. Wei submitted further that the Official Receiver as trustee in bankruptcy was not accountable to the court. In support of that submission, Mr. Wei cited In re Browne(1). The learned judge ordered that the trustee and the appellants "do have leave to file affidavits in reply" to Mr. Soo's affidavit within 3 weeks. 19. On 29th January 1970, a Mr. HO Kwan-king, a certified accountant employed in the office of the Official Receiver, filed an affirmation. He said that he had "thoroughly examined the books of account and other papers of Wood & Co. .......... for the period ........ 1963 to 1966 ....... and the relevant books of account of (the appellants) for the period 1962 to 1968." He also said that he had examined copy invoices and delivery notes; and he said:-
He went on to say that the books of account of the appellants and Wood & Co.
The accounts of Wood & Co. which were before the learned judge certainly do not show that they purchased any of the goods referred to in the appellants' copy invoices; and whatever delivery notes Mr. Ho was referring to, they were certainly not documents tending to show that there was a delivery of iron bars by the appellants to Wood & Co. In fact, no documents of any kind were exhibited to Mr. Ho's affirmation. But certain documents were exhibited in an affirmation by Mr. Shum which was also filed on 29th January, 1970. Firstly, he produced the letter of 6th July 1966 from Messrs. Lau Chan & Ko to Madame Lau. Presumably, this letter had been handed to the trustee by Madame Lau. But there is no evidence as to when this took place. Secondly, he produced what he described as "a statement of account .... submitted ... by (the appellants) showing the current account of Wood & Co. with (the appellants) between ....... 10th January 1963 to 30th November 1965". Thirdly, he produced a godown warrant of Vantage which purported to be an acknowledgement by Vantage that they had "received on storage from Messrs. Van Shung Chong Hong" (i.e. the appellants) a certain quantity of steel bars. The warrant stated that the steel bars were held to the order of the Bank of Tokyo Ltd. Apparently, the bars had been imported because the warrant stated that the bars were "Ex S.S.Yin Kin". The godown warrant was signed by the bankrupt "for and on behalf of" Vantage. Fourthly, Mr. Shum produced a delivery order. The "letterhead" of this document is also that of Vantage; but it is signed by the bankrupt who, it appears, signed his name as manager of Wood & Co. The words "Wood & Co., Manager" appear to be stamped on the document. The signature is opposite the words "Storer's signature/chop" printed in English. Chinese characters also appear above these English words; and there was evidence that the English translation of these characters is "owner's signature/chop". The document authorizes the delivery of a certain quantity of steel bars to a firm named Merry & Co.. It also bears the words "goods already delivered" above a Vantage chop. 20. In his affidavit, Mr. Shum said that the trustee had in his possession 59 similar godown warrants and 337 similar delivery orders. But it does not appear that he had examined any of these documents because he said that he had been informed by Mr. Ho that the goods in the copy invoices (which were not produced either by him or by Mr. Ho) were "similar to" the goods referred to in the delivery orders. 21. Of course, it was now clear that the delivery orders were not delivery orders indicating a delivery by the appellants to Wood & Co., but delivery orders on Vantage notepaper signed by the bankrupt authorising delivery from the godown of quantities of steel bars which had been stored in the Vantage godown by the appellants and held to the order of bankers who, presumably, had advanced money upon letters of credit in connection with the importation of the steel bars, and who would have to be paid before they would authorise the release of the steel bars from the godown. I might add here that the learned judge had an opportunity of perusing the 59 godown warrants and 330 delivery orders. These documents were also available to us. Although the documents are in English and Chinese, they are obviously all prepared by persons familiar with the English language. The quantities of steel bars stored or delivered are stated in Roman numerals, and the names of all parties connected with the storage or delivery are, for the most part, written in English. All the godown warrants and delivery orders were signed by the bankrupt who invariably signed his name in English. Attached to the bundle of godown warrants there is a memorandum apparently addressed to Vantage by the Hongkong & Shanghai Bank which reads:-
22. Not only had Mr. Shum not examined the invoices or delivery orders; it also appears that he had not examined any books of account or other papers relating to the question before the court because in his affidavit he merely said that he had been informed by Mr. Ho that he (Ho) had thoroughly examined the books and that Mr. Ho had made certain statements to him. 23. Obviously, it was Mr. Ho who should have produced all relevant documents, not Mr. Shum who, at any rate at that stage, could say nothing from his own personal knowledge; and the matter before the learned judge was not an interlocutory proceeding. However, no application was made to the learned judge to strike out Mr. Shum's affidavit, presumably because Tak Ming were thankful to receive any documents of any kind which might throw light on the appellants' proof. 24. It appears that prior to the filing of Mr. Ho's affirmation, Tak Ming's solicitors were not aware that the trustee was in possession of books of account of Wood & Co. which might be relevant to the appellants' proof of debt, nor were they aware of the existence of Lau, Chan & Ko's letter dated 6th July 1966 to Madame Lau. On 19th March, 1970, they wrote to the trustee as follows:-
25. On 20th March 1970, Mr. Shum replied to this letter as follows:-
26. The solicitors replied on 20th March thus:-
27. I might add here that in a subsequent affidavit dated 20th May, 1970, a director of Tak Ming (Charles Cheng) alleged that he had been told by Mr. SHUM that there were no books of Wood & Co. available. His affidavit reads:-
28. This was denied by Mr. Shum in an affidavit filed on 26th May, 1970. At any rate, on 31st March 1970, Mr. Shum replied to Tak Ming's solicitors' letter as follows:-
29. In view of the very clear stand taken by Tak Ming in regard to the appellants' proof and the nature of the documents lodged in support, I should have thought that the books of Wood & Co. and the delivery orders signed by the bankrupt were highly relevant. 30. On 20th May, 1970, Charles Cheng filed an affirmation. He criticised the "so-called statement of account" of the appellants which had been produced by Mr. Shum, pointing out that although the entries purported to relate to payments made or received in the years 1963, it was dated 30th March, 1966; not only was it not a contemporaneous record; and, said Mr. Cheng, it "could have been compiled at any time for the purpose of these proceedings." In a subsequent affidavit filed on 26th May, 1970, Mr. Yao said that the statement was:-
There was no affidavit from Mr. Dong Yuen Jih. Annexed to Mr. Cheng's affirmation, there was a copy of what appears to be the appellants' account in the ledger of Wood & Co., but only for the period 14th June, 1963, to 21st December, 1964. I shall have more to say about this document and the appellants' prepared statement later. It is sufficient to say now that in his affidavit, in addition to his challenging the genuineness of the appellants' statement (at least in so far as it purported to be a genuine ledger account showing all transactions between the appellants and Wood & Co.) he indicated that he was unable to reconcile the statement with Wood & Co.'s account. He gave a number of examples of what he regarded as apparent discrepancies; and he said:-
He went on to point out that in the godown warrants and delivery orders the appellants and Wood & Co. "are treated as one and the same person as the storer and/or owner of the iron bars in question"; and he said:-
31. In a further affidavit filed on 26th May, 1970, Mr. Ho took up the particular examples given by Mr. Cheng, and he attempted to reconcile the appellants' prepared statement with the ledger account of Wood & Co. He said that he had "analysed the 2nd respondent's copy invoices, extracts from the godown records of Vantage Godown and the receipted delivery orders of Wood & Co."; and he said:-
32. The resumed hearing before Mr. Justice Briggs was fixed for 27th May, 1970. On 26th May Mr. Yao, without the leave of the Court, (because the three weeks fixed by the judge in his order of 12th January had long since expired) filed an affirmation. He did not say that his prepared statement of account consisted of extracts from an account in a ledger kept by his company in the ordinary course of business. He merely said:-
"Based on invoices" - not extracts from any book kept in the normal course of business. 33. He then produced copies of what purports to be the appellants' office copies of 16 invoices which, he said, were issued in 1963 and 1964. As he admitted in evidence later that he was absent from Hong Kong for most of that period, one wonders how he was able to make this assertion of his own knowledge. 34. Particulars of the 16 copy invoices produced by Mr. Yao are as follows:-
Each copy invoice purports to be addressed to Wood & Co.; it gives particulars of steel bars of various sizes with particulars of the sale price of each type of bar; and, of the 16 invoices, 9 purport to credit Wood & Co. with varying amounts of commission. On invoices nos. 1 and 3-8 inclusive in the above list, there appear the words: "Less your Commission". On invoices nos. 9 and 10 (which two invoices were disallowed by the trustee) there appear the words: "Less commission paid by you". 35. Counsel appearing on behalf of the appellants and the trustee did not cross-examine Mr. Cheng, although he was tendered for cross-examination. Mr. Shum was cross-examined by counsel for Tak Ming. He repeated that he had no personal knowledge of dealings between the appellants and the bankrupt, and that it was no part of his duties to examine accounts. He did say, however, that he was not aware of any contemporaneous documents signed by Wood & Co. evidencing a sale to them by the appellants; that he found no contracts between the appellants and Wood & Co.; and that he simply presumed that there had been such sales, having looked at the 16 invoices. 36. Counsel for the appellants then applied for leave to cross-examine the witness; and leave was granted. Apparently, counsel's object was to get the witness to produce a bundle of documents (referred to thereafter as Ex."A"). Mr. Shum said that he had received these documents from the appellants - he did not say when. So far as the evidence goes, this was the first time Tak Ming and their legal advisers had seen these documents and Mr. Mills-Owens (counsel for Tak Ming) sought leave to cross-examine Mr. Shum further. 37. The documents (Ex.A) are written on Wood & Co. notepaper. On each document there are Chinese characters and Roman numerals. They are not typewritten; they are written by hand. Each document purports to be a record of sales of iron bars for a particular month and commences thus:
or words to that effect. Then, quantities of various sizes of what are, presumably, steel bars are particularized. The price at which each quantity is alleged to have been sold is given; and at the foot of each document appear the words and figures: "Average unit price $....". None of the documents in Ex.A are signed. 38. It was Mr. Mills-Owens who elicited from Mr. Shum that the particulars on the invoices said to have been issued by the appellants were simply copied from the documents (Ex.A) which had been forwarded by Wood & Co. to the appellants from time to time. In other words, each invoice was issued after the appellants had received from Wood & Co. the particulars of purported sales. For example, in Ex.A there is a note from Wood & Co. giving particulars of "goods sold for the month of July". The total sale price is given as $263,637.29. The appellants copied the particulars on their invoice R63/211 dated 31st July 1963 and added the words: "Less your commission $247.62"; and so the net figure in the invoice is $263,389.67. 39. Mr. Ho was then cross-examined by counsel for Tak Ming. According to the judge's note, Mr. Ho said that he did not have any books of Wood & Co. relating to the period prior to 1st June 1963. He said that he could not find "any previous books". This is an extraordinary situation considering that Wood & Co. were registered in February 1956. Mr. Ho then said that he was not aware of any document signed or accepted by Wood & Co. acknowledging that there had been sales of steel bars by the appellants to them. When cross-examined about Ex.A, he is recorded as having said:-
40. Mr. Yao was then cross-examined. He said that he was managing partner of the appellants, and that the statement of account produced by Mr. SHUM was "prepared in 1966 to satisfy the Official Receiver". He was not asked what he meant by the word "satisfy". So far as the evidence goes, he had no dealings with the Official Receiver prior to lodging his proof of debt on 27th July, 1968. Nevertheless, when re-examined later on behalf of the trustee, he repeated that it was the Official Receiver who had asked him for a statement of account. When asked why it was dated 30th March 1966 if it was prepared for the Official Receiver, he changed his story and said:-
41. Mr. YAO admitted that he had not thought fit to charge the bankrupt interest on the alleged outstanding debt; and that, at 1% per month, this meant that he was losing $100,000 per annum. He said that the documents in Ex.A were the monthly statements prepared by "a foki" of the bankrupt which the appellants received from Wood & Co. showing the steel bars purchased by them (Wood & Co.) from the appellants and that Ex.A was not a report of the bars sold by Wood & Co. to their customers. He denied that Ex.A represented sales made on behalf of the appellants. 42. It was not until Mr. Yao was re-examined on behalf of the trustee that the 59 Vantage Godown warrants and 330 Vantage delivery orders were produced. 43. Returning now to the statement of account prepared by Yao and his accountant in 1966 either for the purpose of "satisfying" the Official Receiver or for his solicitors - whichever version is the true one. This is a very peculiar document, to say the least of it. It is typed on accounts paper; and this is calculated to give the casual reader the impression that it is a bona fide ledger account kept in the ordinary course of business recording transactions between the appellants and Wood & Co. Of course, after the matter was investigated, it became clear that it was nothing of the kind. One naturally asks oneself: when the bona fides of the appellants' proof of debt was clearly being questioned by Tak Ming, why was it ever necessary for this statement to be prepared at all? Surely production of the entire ledger account (if such an account ever existed) would have been a more satisfactory way of proving a bona fide course of dealing with Wood & Co. if, as the appellants say, there was a true debtor and creditor relationship existing between the parties in 1963. If a true ledger account existed, why was it not produced by Mr. Ho when he was in the witness box under cross-examination? He knew perfectly well that the correctness of Mr. Shum's decision to admit the appellants' proof was being questioned, and that this decision had been continuously questioned by Tak Ming during the previous 18 months. If, as we were given to understand, all books of account were brought into court in response to a subpoena issued at the instance of Tak Ming, it would have been the simplest thing imaginable for Mr. Ho to have pointed to whatever contemporaneous accounts and documents there were which, in his view, supported the entries in this prepared statement. After all, a sale by A to B is not a complicated matter. There ought to have been some document of some kind by Wood & Co. acknowledging in clear simple terms that they had purchased steel bars from the appellants on a number of occasions. There should have been entries in the books of the two companies showing delivery of the goods and payment therefor. 44. The appellants' prepared statement covers the period 10th January 1963 to 30th November 1965. There is no opening balance. If, as was suggested in evidence by Mr. Shum, and by counsel for the appellants in this court, there was a "running account" between Wood & Co. and the appellants, surely there ought to have been a balance one way or the other, unless, of course business commenced on 10th January, 1963. At any rate, there was no evidence on the point. The first entry with which we are concerned is shown under 5th March. It simply says: "Invoice 1861 $1,648,925.15". That purports to indicate that on 5th March 1963 the appellants sold to Wood & Co. the steel bars enumerated in invoice 1861. This invoice purports to have been prepared by the appellants on 5th March, 1963; and the quantities of bars allegedly sold to Wood & Co. is the total of the quantities enumerated on 3 notes apparently prepared by Wood & Co. (part of Ex.A) which notes indicated that they (Wood & Co.) had sold those goods during October, November and December 1962. 45. Then there is an entry purporting to record that on 5th March Wood & Co. paid the appellants $410,000 in partial discharge of their indebtedness. Then, there are three entries under 6th March, about which there was no evidence adduced before the judge. The first of these three entries indicates that Wood & Co. had purchased "small iron" on behalf of the appellants and, presumably, that they had paid for it, because the appellants purport to give them credit for $347,135.04. The next entry purports to give Wood & Co. credit to the extent of $146,200.15 for having incurred various "expenses" on behalf of the appellants; and the third entry purports to give Wood & Co. credit to the extent of $105,543.52 in respect of "readjustment of sales" whatever that is supposed to mean. 46. Then the invoice No.1879 is entered under 14th March, 1963, i.e. it purports to show that on 14th March, 1963 $238,026.30 worth of steel bars were sold to Wood & Co. The relevant document in Ex.A purports to show that $249,079.15 worth of steel bars were sold in January, 1963. This is the figure entered in copy invoice No.1879. But, on this occasion there is no commission. Instead there is a deduction of $11,052.85 in respect of "Sales to Sang Lee Co., Ltd." There was no evidence as to the relationship of Sang Lee & Co., Ltd. with the appellants and Wood & Co. 47. It is not necessary to deal with each item in the appellants' statement. It is sufficient to say that as far as the period 10th January 1963 to 21st June, 1963 is concerned, there are further entries relating to the copy invoices Nos.2165, R63/100 and R63/099. The total sum purportedly due under the 5 invoices to which I have so far referred was $3,626,569.89. Wood & Co. are given credit for having purchased a great deal of scrap iron on behalf of the appellants during April and May, 1963 and they are also given credit for having paid Vantage the round figure of $300,000 on behalf of the appellants (presumably on account of storage charges in respect of the appellants' steel bars). The purported balance owing by Wood & Co. to the appellants as at 21st June, 1963 is stated to be $1,248,705.73. 48. According to this prepared statement, between the 18th July and 10th December, 1963, invoices R63/156, R63/211, R63/290, R63/361, R63/402 and R63/456 were rendered to Wood & Co. All invoices were apparently made out after the appellants had received notes from Wood & Co. (Ex.A), which notes purported to suggest that they (Wood & Co.) had sold certain quantities of steel bars. The total sum purportedly due by Wood & Co. to the appellants under these 6 invoices is $1,337,277.78. 49. During this period (July to December, 1963), the statement purports to show that Wood & Co. made the following "partial payments" to the appellants:-
And, again, during this period, Wood & Co. are given credit for having purchased each month, on behalf of the appellants, quantities of "small iron"; and they are credited with having paid "expenses" on behalf of the appellants; and the balance in favour of the appellants as at 19th December, 1963 is given as $1,074,648.03. 50. So far as the year 1964 is concerned, this prepared statement purports to show that Wood & Co. paid the appellants $50,000 on 19th March, and $20,000 on 31st March; that, on the 31st March, Wood & Co. purchased two lots of scrap iron on behalf of the appellants; and the appellants are shown as having credited Wood & Co. with $164,750.57. Then, the invoices R64/336, R64/396, R64/395, R64/416, and R64/453 are entered up. Those invoices were for small amounts which total $15,152.95; and Wood & Co. are shown as owing the appellants as at 1st July, 1964 $855,050.41. 51. According to this prepared statement, there were no further transactions between the two companies during the last 6 months of 1964; and there are only two entries relating to the year 1965. On 20th and 30th November, 1965, the appellants are shown as having received from a firm called Wing Wah Company, on behalf of Wood & Co., two small sums totalling $4,400; and Wood & Co. are credited with this amount; with the result that as at 30th November, 1965 Wood & Co. are shown as owing $850,650.41; and it was for this large sum that the appellants, on 27th July, 1968, lodged their proof of debt. 52. Turning now to the account of Wood & Co. As I have said, we have the extraordinary situation that although this firm was registered as having commenced business in 1956, according to Mr. Ho, no books for any period prior to 14th June, 1963 have come into the hands of the Official Receiver. The papers before this court appear to be a copy of the appellants' account in the ledger of Wood & Co. for the period 14th July, 1963 to 21st December, 1964. The first entry is an opening balance of $1,248,705.73 as at 14th June, 1963 in favour of the appellants. This is the figure shown in the appellants' prepared statement as being the amount due to them by Wood & Co. as at 21st June, 1963; and, because of that, the courts are being asked to assume that Wood & Co. must have received the previous 5 invoices, the total value of which was purportedly $3,626,569.89. 53. There isn't a scrap of evidence before the court, coming from Wood & Co.'s documents, to support this assertion other than this large opening balance in what appears to be a copy of Wood & Co.'s ledger. There is no evidence that any of the 16 invoices in question were ever received by Wood & Co.; and there is no explanation, coming from Wood & Co.'s side, for this large opening balance which tallies so exactly with the appellants' prepared statement. As I have said, if there was a "running account" in the sense that Wood & Co. paid the appellants round sums from time to time in discharge of their total indebtedness, it is remarkable that the balance on the two accounts should ever have coincided at all; and it is even more remarkable that this co-incidence should have occurred on 14th June, 1963 prior to which date all Wood & Co. accounts have mysteriously disappeared. Perhaps Madame Lau could have thrown some light on the matter if she had been asked to testify. 54. From 14th June, 1963 onwards, Wood & Co.'s ledger account and the appellants' prepared statement bear very little resemblance. There are no entries in Wood & Co.'s account in respect of the remaining 11 copy invoices totalling $1,352,420.73; and throughout 1963 the only reference to the purchase of iron on behalf of the appellants is an entry of $30,808, the date being 29th November, 1963. This entry purports to indicate that Wood & Co. paid the appellants this sum being "transportation charges" in respect of some "iron bars". There is an entry in the credit column of the appellants' prepared statement for this same amount. It purports to give credit to Wood & Co. for having purchased "small iron" to the value of $30,808 on 10th December, 1963. Except for that one entry, Wood & Co.'s account makes no reference to the large quantities of "small iron" and "scrap iron" and "expenses" allegedly incurred on behalf of the appellants during the last six months of 1963. This is surprising, to say the least of it, considering the sums involved. According to the appellants' statement, during the last six months of 1963, Wood & Co. made purchases of scrap iron and incurred other expenses on behalf of the appellants to the extent of $576,661.15. 55. For the period 14th June to 19th December, 1963, Wood & Co.'s account shows the "partial payments" to the appellants which are shown in the appellants' prepared statement. This is really the only respect in which the two documents bear any resemblance to one another. 56. At any rate, according to Wood & Co.'s account, as a result of the "partial payments", the large balance which they purportedly owed to the appellants in June, 1963 was reduced to $274,857.73 by the end of December, 1963. 57. As regards 1964, Wood & Co.'s account purports to show that they purchased very considerable quantities of scrap iron, apparently on behalf of the appellants, and that they incurred "expenses" in connection therewith. There are entries relating to ship's charges, and coolie and other transportation charges in connection with the delivery of this iron to various persons or firms. All such outlays are debited to the appellants. As I have said, in the appellant's prepared statement, on 31st March, 1964, Wood & Co. are credited with having purchased $164,750.57 worth of scrap iron on behalf of the appellants. According to Wood & Co.'s account, there were several purchases of this nature made during the period January to June, 1964; but it is impossible to reconcile the figure $164,750.57 with the figures in Wood & Co.'s account. 58. According to Wood & Co.'s account, the only amounts for which the appellants were given credit are the following:-
59. By far the greater part of the 1964 expenditure allegedly incurred on behalf of the appellants by Wood & Co. took place during the first 6 months. Looking at Wood & Co.'s account for 1964 in isolation, as at 30th June, they had, apparently, incurred expenditure amounting to $408,353.32 on behalf of the appellants; and they had received from the appellants money, or money's worth, amounting to $144,324.45. The balance in favour of Wood & Co. as at 30th June, 1964 was $264,028.87. 60. In July, 1964, Wood & Co. appear to have debited the appellants with solicitors' fees and other expenses in connection with a court action (O.J.323/63), in regard to which no evidence was given in the court below; and, for the remaining months of 1964, the two firms are not shown as having done any business at all. 61. So far as 1965 is concerned, there is only one entry in the Wood & Co. account. The appellants are shown as having been debited with the sum of $117.80 being "Stamp duty and travelling expenses in respect of O.J. Action 142/65". Again, there was no evidence about that in the court below. 62. Wood & Co. wrote up their accounts in a rather peculiar fashion. Except for the last entry on 21st December, 1964, they do not appear to have made use of the "balance" column at all. Instead, they used the debit and credit columns; and, having totalled the entries for any given month, they would then add on the totals for the previous months; and so on throughout the year. 63. Their account shows that the appellants owed them $334,803.12 as at 21st December, 1964 and $334,920.92 as at 16th January, 1965. On the basis of their own figures, this is inaccurate. It is clear from the certified translation before us that at the end of April, 1964 they forgot to add on the total of the credit entries for the months January/March, 1964. The total of the credits as at 30th April should be $130,706.25, not $60,956.25. The latter figure was the total of the 3 credits for April only. The result is that, looking at their 1964 accounts in isolation, the balance in their favour should be $265,054.12 as at 21st December, 1964 and $265,171.92 as at 16th January, 1965. 64. However, this does not take account of the fact that, on their accounts, they owed the appellants $274,857.73 at the end of December, 1963 which balance was not incorporated into the 1964 or 1965 accounts. The net result is that according to Wood & Co.'s accounts, on 16th January, 1965, subject to what I an about to say, they owed the appellants $9,685.81. 65. Although it is not shown on the certified copy translation of Wood & Co.'s account before this court (nor is it shown in the appellants' prepared statement) the affidavits make reference to a further payment of $13,116.95 by the appellants to Wood & Co. on 19th June, 1964. According to Mr. Yao this was in respect of some work done by Wood & Co. for the appellants in connection with an exhibition of Japanese products in 1964. There were certain documents, apparently produced by Yao in his affidavit as Ex.YSS-2, emanating from Wood & Co. and said to be receipts by Wood & Co., which corroborated Yao's evidence. However, even making allowance for this, on Wood & Co.'s accounts, the balance in favour of the appellants would only be increased from $9,685.81 to $22,802.76. 66. In this connection, I am quite unable to understand the meaning of the following paragraph in the affirmation filed on 26th May, 1970 by Mr. Ho, the investigating accountant. He says:-
Whether one looks at the accounts for 1964 and 1965 in isolation or whether one looks at the accounts for the whole period commencing with the opening balance as at 14th June, 1963, on the papers before this court, the balance is certainly not $195,170.92. Counsel for Tak Ming have checked my additions; and they agree that my figures are correct. 67. There may well be an explanation for Mr. Ho's apparent error. But it is not apparent from the papers before this court; and I am quite unable to understand his assertion that the ledger account of Wood & Co. shows the appellants as owing Wood & Co. $195,170.92. I agree that it was not Mr. Ho who produced Wood & Co.'s ledger account. It was Mr. Chong who did so. But if it is complete in respect of the period 14th June, 1963 to 21st December, 1964 (and it certainly appears to be so) it is most unsatisfactory if the courts are unable to rely on an investigating accountant to add up a column of figures correctly. The point does not appear to have been explored in the court below; and both counsel and the judge accepted Mr. Ho's assertion. 68. I also do not understand the next sentence in the same paragraph of Mr. Ho's affidavit. He says:-
69. In the appellant's prepared statement, not only were Wood & Co. given credit for the sum of $164,750.57 (i.e. $135,449 plus $29,301.57) being scrap iron allegedly purchased by Wood & Co. on the appellant's behalf and entered up as at 31st March, 1964; as I have said, during the last 6 months of 1963 they were also given credit for having purchased scrap iron and having incurred other "expenses" to the extent of $576,661.15. Again, there may be an explanation; but Mr. Ho was not cross-examined as to the meaning of this part of his affidavit. 70. In my view, there is no doubt at all that, from the beginning, Tak Ming suspected that the appellants' proof of debt might well be fraudulent. Of course, they could not make a positive assertion to this effect. They did not have access to the appellants' books of account nor to the books of account of Wood & Co. All they could do was to point out to the trustee what appeared to them to be suspicious circumstances, that is to say, the fact that there was no evidence that the appellants had ever tried to recover their alleged debt during the life time of the bankrupt, the delay in lodging the proof of debt, the close relationship of the bankrupt and Mr. Yao, particularly as regards Vantage Godown Co., and so on. 71. When, eventually, they were permitted to examine the proof of debt, and the documents in support, and the books of account of Wood & Co., their suspicions must have increased 10-fold. Mr. Cheng was by no means satisfied from his examination of the documents that the iron bars referred to in the delivery notes were the same iron bars as was referred to in the invoices. He said that there was nothing to connect them together. But, assuming this in the appellants' favour, it soon became apparent to Tak Ming that there were no contracts, credit notes, delivery notes, letters, or any other documents of any description amongst the papers of Wood & Co. to suggest that they had ever purchased, or had agreed to purchase, the steel bars referred to in the appellants' copy invoices, nor were the appellants themselves in possession of any such documents emanating from Wood & Co. There was nothing to suggest that the originals of the 16 invoices were ever received by Wood & Co. and there was no reference to them in Wood & Co.'s accounts. Not only had the appellants made no attempt to recover the alleged debt, but their books of account did not indicate that they were charging interest on it - thereby losing approximately $100,000 per year. 72. When the matter was probed in court, the learned judge was given no explanation as to how the appellants' statement had been prepared, that is to say from what contemporaneous documents, if any, the various entries in the statement had been extracted, nor indeed was any satisfactory explanation given as to how it was ever necessary to have a statement of this kind to support a proof of debt if a bona fide ledger account, or any other contemporaneous documents which had been maintained in the ordinary course of business in 1963, were available for the trustee's inspection. 73. Clearly, the ledger account of Wood & Co. and the appellants' prepared statement cannot be reconciled. Mr. Ho said that he found that Wood & Co.'s books were far from complete. If, by that, he meant that there were entries in the appellants' prepared statement which were not in Wood & Co.'s account, that is perfectly obvious. But, at least Wood & Co.'s account has the merit of being a contemporaneous document; and the complete absence from that document of any reference to the 16 invoices in question, cannot be dismissed lightly. There was no evidence before the judge to support Mr. Ho's statement that the books of Wood & Co. were incomplete beyond the fact that, having done a "full investigation", he came to the conclusion that the bankrupt was indebted to the appellants. He did not even say why he rejected two of the appellants' invoices and admitted the other 14 invoices. The two rejected invoices are dated 30th October, 1963 and 13th November, 1963; and, as in the case of all the other invoices, the figures were copied from two notes, being respectively notes which purported to be reports by Wood & Co. to the appellants of "goods sold for the month of September" and "goods sold for the month of October". 74. The learned judge regarded the notes (Ex.A) as referring to goods sold by Wood & Co. to their customers. Counsel for the appellants submitted that this was not in accordance with Yao's evidence, the note of which reads:-
It is difficult to decipher from that what Yao was trying to say. In this court, it was submitted on behalf of the appellants that there must have been some prior oral agreement between the parties to the effect that the bankrupt could, at any time, take whatever steel bars he required and pay for them afterwards, and that the notes (Ex.A) were reports by the bankrupt of what he had taken so that the appellants could then make out the necessary invoices. As to that, there is no evidence whatsoever of any such oral agreement. If there had been such an agreement, why allow the bankrupt commission? As to that, it was counsel's submission before this court that in Chinese there is no difference between "commission" and "discount". That may be. But these copy invoices were all made out in English by someone who was obviously familiar with the English language. 75. Of course, if the notes (Ex.A) were reports by the bankrupt of what quantities of iron bars he had sold to his customers, there was no rational explanation why he was selling at the same price as he was purchasing the bars from the appellants. But, were Merry & Co., and all the other consignees whose names appear on the delivery orders, customers of the bankrupt or customers of the appellants? If Wood & Co. were purchasing for themselves, why did they insert on each note (Ex.A) the words "average unit price"? 76. There is, of course, no evidence either way; but, on the papers before this court, in my view it is far more likely that the customers whose names appear on the delivery orders were customers of the appellants. I notice some well-known names on these delivery orders - such as Davie Boag & Co., Ltd. Unquestionably, such a company keeps proper books of account; and I should have thought that it would have been a very simple matter to have asked such a company to say with whom they thought they were dealing in regard to their purchase of iron bars and to whom they made payment - the bankrupt or the appellants. There is certainly not a scrap of evidence that the bankrupt was paid by any of these customers. 77. Counsel for the appellants submitted that because Mr. Ho said that he did a "full investigation" that we should infer that the customers paid the bankrupt. The judge in the court below drew no such inference; and, for myself, I am not prepared to do so. 78. In the court below, Tak Ming's main submission was that, on the evidence adduced, the bankrupt was not indebted to the appellants. The judge has dealt with that submission very fully; and, although he made no specific finding as to the genuineness or otherwise of the copy invoices, there is no doubt at all that he found that no debtor/creditor relationship existed. He said:-
79. Clearly, the judge placed little weight on the copy invoices. It would not have surprised me in the slightest if he had found as a fact that the originals of these invoices had not been delivered to the bankrupt in 1963. For one thing, he was not impressed by Yao as a witness; and, apart from the mere existence of the copy invoices, the only evidence that the originals were ever delivered to Wood & Co. came from Yao, who, apparently, was absent from the Colony for at least part of the relevant period. 80. However, the issue as to whether there existed a true debtor/creditor relationship between the appellants and Wood & Co. did not depend entirely on whether the invoices had in fact been made out and delivered to Wood & Co. in 1963, but on the whole of the evidence and the natural inferences to be drawn therefrom; and it is clear that, on the whole of the evidence, even accepting the fact that these 16 invoices may have been made out in 1963, the learned judge was not prepared to find that the intention of the parties was to create, as between themselves, a debtor/creditor relationship. 81. I see no reason to differ from the learned judge's finding. Whatever the true relationship was between the bankrupt and the appellants, on the evidence adduced, it is difficult to see how any court could reasonably have found that a true debtor/creditor relationship existed. 82. But, it is argued by counsel for the appellants that the "onus" of proving that the trustee erred in admitting the appellants' proof of debt lay upon Tak Ming; that the trustee reached his conclusion on a great deal more information than is contained in the documents before this court; that it was for Tak Ming to call for all books of account and other documents to enable the court to come to a proper conclusion; and that, in the absence of these additional documents, this court cannot possibly say that the trustee came to a wrong decision, because there was no "onus" upon him to produce anything. 83. For these propositions, counsel relied mainly on three cases:-
84. As regards In re Chung Shun Koo(2), in 1906 Bankruptcy Ordinance No.7 of 1891 was in force. In those days, the provisions relating to proof of debt were in the Ordinance itself (ss. 30-32). I have not been able to find any provision comparable to rule 23 of the Proof of Debt Rules made under Cap.6 (which rule enables the trustee nowadays to apply to court for an order expunging a proof if he thinks that it has been improperly admitted). But s.30(a) of the 1891 Ordinance reads:-
85. In In re Chung Shun Koo(2), the Chief Justice appears to have been in some doubt as to whether the Official Receiver acted judicially or ministerially when deciding whether to admit or reject a proof of debt. Be that as it may, it appears that in those days a proceeding under s.30(9) of the 1891 Act was in the nature of an appeal from the Official Receiver's decision; and no appeal lay after the expiration of one month, unless the court permitted such an appeal to be brought "for special reasons shown". 86. That being so, it is hardly surprising that the Chief Justice was not prepared to order that certain creditors be summoned to court to substantiate or adduce further evidence in support of their claims merely because the trustee had instructed counsel to say that the creditors' claims were "bogus" without, as the Chief Justice said, "adducing the slightest evidence or giving any reasons casting suspicion on the claims". 87. However, the Chief Justice thought that a case had been made out for investigating certain oil contracts; and, although the question raised concerned the correctness or otherwise of the decision to admit a creditor's claim, he decided to call upon the creditor as a person who (in the words of s.26(1) of the 1891 Act) the court deemed "capable of giving information respecting the debtor"; and he said that the creditor's proof would be treated by the court as prima facie proof of the claim and that counsel for the trustee would be permitted to cross-examine the creditor. 88. Section 26(1) of the 1891 Act appears to be in much the same terms as s.29(1) of Cap.6, except that nowadays the jurisdiction of the court under the latter section only arises upon an application by the Official Receiver. Section 26(1) of the 1891 Act read:-
As in the case of s.29(1) of Cap.6, this provision enabled the court to enquire into the debtor's conduct and his dealings with his property. It has nothing whatever to do with the procedure to be adopted when the correctness of a decision to admit or reject a creditor's proof of debt is called in question. Whatever may have been the practice in 1906, I do not think that today s.29(1) would be invoked if the question in issue were the correctness or otherwise of the Official Receiver's decision to admit or reject a creditor's proof of debt. I do not find re Chung Shun Koo(2) of any assistance to me. 89. The facts in In re Browne(1) were, to say the least of it, unusual. The debtor was adjudicated bankrupt in 1912. In 1913 he made a statement of affairs; and, subsequently, a proof of debt was sworn by a creditor who was a commission agent. The creditor died in 1919; and the debtor died in 1921. In 1924 the debtor's trustee in bankruptcy admitted the creditor's proof, and he obtained his release from the trusteeship in 1925. The Official Receiver was appointed trustee in bankruptcy; and, in 1958, certain monies came into his hands. The Official Receiver applied to court to have the commission agent's proof expunged on the ground that it was an unenforceable gaming debt, and that the proof was improperly admitted. Cross J. said (pp.695/6):-
90. As I read this report, the only matter which the Official Receiver could really point to was the creditor's profession. The judge felt that no trustee would have been so foolish as to allow proof of a gambling debt; and, in view of the lapse of time and the lack of evidence because all persons who could have thrown any light on the matter had died, the judge felt amply justified in assuming that in 1925 the trustee must have made further inquiries before admitting the proof of debt; and he accordingly applied the principle omnia praesumuntur rite esse acta. I do not read this case as laying down any general rule that, once a proof has been admitted, the burden of proving that it was improperly admitted lies upon the person alleging this to be so. The headnote to the report of the case in the All England Reports speaks of "the burden" being on the applicant; but the effect of a judgment is not controlled by what any editor may say in a headnote. The facts were so different from the facts in this case that I do not derive any assistance from In re Browne(1) 91. Counsel for the appellants relied particularly on certain dicta in the Yick Fat Land Investment Co., Ltd. case because the phraseology of s.200(5) of the Companies Ordinance Cap.32 (the subsection under which the application in that case was made) is similar to s.83 of the Bankruptcy Ordinance Cap.6, the section which was invoked by the appellants in this case. Section 200(5) of Cap.32 reads:-
Section 83 of the Bankruptcy Ordinance reads:-
92. In the Yick Fat Land Investment Co., Ltd. case, six gentlemen formed a company, the object being to acquire some old property in Kowloon, to develop the site by building a 15-storey block of flats, to sell the flats, and thereafter to wind up the company. The site was developed; but, when the time came to wind up the company, the contributories disagreed as to how this should be done. The two contributories who found themselves in a minority, sought and obtained an order that the company be wound up by the court. The Official Receiver was appointed liquidator. The liquidator investigated the affairs of the company; but he was handicapped in that the company had been badly mismanaged. As Huggins J. said, the rules for the conduct of companies had been completely ignored. No records or minutes of meetings had been kept. 93. Flats had been sold by individual contributories; and the main question was the extent to which each contributory was indebted to the company. The Official Receiver thought it desirable to obtain the sanction of the court to his proposals for the return of capital. The contributories were informed of an order made by the late Mr. Justice Creedon; and the two contributories who had successfully applied for the company to be wound up under the supervision of the court then applied to Mr. Justice Huggins for an order setting aside the order made by Mr. Justice Creedon. 94. In the course of his judgment, Mr. Justice Huggins said:-
"That view of the law" was, presumably, Miss Smith's view, which the judge summarised. However, the judgment continues thus:-
95. As I recall the case when it came up to this court on appeal, it was clear that prior to, and during, the development of the site the six contributories had been in close touch with one another and each of them knew perfectly well what was happening. Huggins J. was quite correct in stating, in effect, that if any evidence existed to support the contention that the Official Receiver's decision was wrong, the applicants could easily have placed it before the court; and they had not chosen to do so. 96. As I understand the judgment, the applicants had not even raised a suspicion that the Official Receiver's decision was wrong, much less had they established a prima facie case for investigation; and it was against that background that the learned Judge said: "The Official Receiver must be assumed to have done his duty and anyone who says he has not must produce evidence." 97. When the case came up to this court on appeal, counsel for the appellants (the applicants in the court below, i.e. the dissatisfied minority) submitted that, on the papers before the court, there was ground for suspicion which called for further investigation by the liquidator; and that the liquidator's decision to distribute the capital in a particular way was premature. 98. Various matters were argued. For example, it was said that another contributory was sole proprietor of a company which had carried out the major portion of the building operations; that this company had made a profit out of the contract; and that the Articles of Association of the Hop Yick Co. did not authorise a contributory to enter into contractual relations with the company. 99. It was, of course, admitted that all the contributories knew perfectly well that this company had been authorised to carry out the building work; but the submission was that the liquidator should have been "slow to assume" that the contributory had been given authority by the Hop Yick Co. to make any profit out of the work. 100. Another matter raised concerned a building mortgage to which a certain Mr. Sadick was a party. As I said in giving the judgment of this court dismissing the appeal:-
Again, the position was that no prima facie case for investigation had been made out; and, although no application had been made to Huggins J. under s.221 of the Companies Ordinance, the appellants then applied to this court for an order that the sole proprietor of the construction company and Mr. Sadick should both be summoned for cross-examination before a judge. 101. As I said then:-
102. The general question of "onus of proof" in situations of this sort was not argued at all in the Yick Fat case; and this court certainly did not intend to lay down any general rule regarding onus of proof. As Lord Halsbury said in Quinn v. Leathem(4):-
103. I might also add that although 9 cases were cited to this court in the Yick Fat appeal, In re Kentwood Constructions Ltd.(5), a decision of Buckley J. (which was approved by a strong Court of Appeal consisting of Hodson L.J., Ormerod L.J., and Harman L.J. in re Trepca Mines Ltd.(6), was not cited. 104. In re Kentwood Constructions Ltd.(5), the liquidator had rejected a proof of debt. The claimants issued a summons asking that the decision of the liquidator might be reversed and the proof be ordered to be admitted in full. The claimants filed an affidavit in support of their claim; the liquidator filed an affidavit in answer; and the claimants filed a further affidavit in reply. The registrar dismissed the claimants' appeal from the rejection of their proof. Buckley J. said (p.647):-
105. Counsel for the appellants submitted that a distinction should be drawn between the case of a creditor who seeks an order reversing a trustee's decision rejecting the creditor's proof of debt and an application by some third party who seeks an order from the court expunging a proof of debt which has been admitted by the trustee; that, in the former case, the onus is still upon the creditor whose proof has been rejected to satisfy the court that it should be admitted; that, in the latter case, there is no "onus" upon the creditor whose proof has been admitted; that there is a presumption that the decision of the trustee is correct; and that the "onus shifts" to anyone who choose to question the trustee's decision. 106. It is, of course, trite law that he who alleges must prove; and, in cases where a proof of debt has been rejected and the creditor applies to court under s.83 of the Bankruptcy Ordinance for an order reversing the trustee's decision, the onus is upon the creditor to prove judicially what he has previously failed to prove administratively; and it is open to him to adduce all relevant evidence whether such evidence was, or was not, placed at the disposal of the trustee. But I doubt whether it is correct to speak of there being an "onus" on every applicant under s.83 in the sense in which that term is used in ordinary litigation. The phraseology of s.83 of Cap.6 and r.25 of the Proof of Debt Rules made under that Ordinance is quite different from s.30(9) of the 1891 Ordinance. As Mr. Jackson-Lipkin pointed out, the proceeding before Briggs J. was not an appeal from the decision of the trustee. It was an original application; and such an application may be made by the bankrupt himself, a creditor, or any other person aggrieved. 107. Where a person aggrieved challenges the correctness of the trustee's decision to admit a proof of debt lodged by a creditor and the trustee declines to interfere, it is not enough for the person aggrieved to say in effect: "I suspect that the creditor's proof is bogus; please look into it." It is not the function of this court to supervise the day-to-day activities of the Official Receiver's department; and we shall not permit the work of that department to be disrupted by forcing the Official Receiver to come to court and lead evidence to justify each and every decision made in the exercise of his functions as liquidator or trustee in bankruptcy. On the other hand, no hard and fast rules can be laid down. It depends on the circumstances. The court's paramount duty is to see that justice is done. 108. This much can be said: The court will not entertain an application under s.83 of the Bankruptcy Ordinance (or, for that matter, under s.200(5) of the Companies Ordinance) unless the applicant establishes a prima facie case meriting investigation. But, when such a case has been established, the court will not hesitate to investigate decisions made by the Official Receiver in his capacity as liquidator or trustee in bankruptcy. His decisions are no more sacrosanct than those of a magistrate or a judge. 109. In my view, a prima facie case meriting investigation was established upon the filing of the affidavits by Mr. Soo and Mr. Cheng. The judge decided to examine de novo the trustee's decision; and, in my view, it was then for the appellants to prove judicially what they had previously succeeded in doing administratively. They and the trustee had all the means of doing so. Tak Ming had no means of knowing what transpired between the appellants and the bankrupt. All relevant documents were either in the possession of the appellants or in the possession of the trustee. Everything which could possibly have assisted the court to come to a proper conclusion was within the knowledge of the appellants and the trustee. 110. It is said that a mass of documents were brought into court in response to Tak Ming's subpoena, and that because Tak Ming did not think fit to call for such documents as they considered relevant, this court should assume that the Official Receiver's decision must be correct. I do not agree. Only the trustee and the appellants could say what documents, if any, (other than what had been already exhibited by affidavit) were relevant to the application before the court. As I have said, Messrs. Ho and Shum knew perfectly well what the issues were; and, if they were in possession of documents or information to establish the correctness of their decision, it would have been a very simple matter for them to have produced these documents. Instead, they chose to stand on an assertion of the most general nature, from which no particular inferences could possibly be drawn viz.: "I did a full investigation." In the circumstances of this case, that was simply not good enough. 111. The same applies to Yao. It would have been a very simple matter for him to have indicated on what contemporaneous documents his prepared statement was based. If a bona fide ledger account kept in the ordinary course of business, or indeed any other documents of this nature, had been available, he could easily have produced them. 112. Although the main issue throughout has been whether a debtor/creditor relationship existed between the appellants and the bankrupt, it is hardly surprising that, from time to time, everyone connected with this case has asked himself the question: "If the relationship was not that of debtor/creditor, what was it?" As I have said, in the affidavits of Mr. Soo and Mr. Cheng one finds suggestions that the appellants may have been "financing" the bankrupt, that a "special relationship" may have existed between them, that the relationship may have been "quasi-partnership". Something on these lines was argued in the court below; and, although we do not have a note of counsel's submissions, the judge informs us that Re Beale(7) was cited to him; and, in the final paragraph of his judgment, he said:-
113. In this court, counsel for the appellants naturally concentrated on that aspect of the judgment and cited a number of cases including re Childs(8) and Re meade(9), and he submitted that the evidence did not support the judge's conclusion that a quasi-partnership existed. 114. It is not altogether clear what the judge had in mind when he expressed the view that the relationship was that of quasi-partnership. He had found that no debt existed; and he had ordered that the proof be expunged - not that the appellants should be placed in the position of deferred creditors. 115. For myself, I do not propose to discuss, much less speculate as to what exactly was the relationship between the bankrupt and the appellants; and, in particular, whether such relationship might, or might not, be correctly described as "special" or "quasi-partnership". If we are satisfied, as I am, that the appellants failed to prove that a debtor/creditor relationship existed, that is the end of their case. 116. As it seems to me, it was for these reasons that on 12th March this court dismissed with costs the appeal from the decision of Mr. Justice Briggs.
Representation: Bernacchi. Q.C. & R. Wei (Woo & Woo) for Appellant. Jackson-Lipkin & Mills-Owens (S. Soo & Co.) for Respondent. ...(illegible) (1) (1960) 1 W.L.R. p.692; (1960) 2 A.E.R. p.625. (2) (1906) 2 H.K.L.R. (Bankruptcy Cases) p.15. (3) Companies Winding Up No.4 of 1966; and Civil Appeal No.4 of 1969. (4) (1901) A.C. at p.506 (5) (1960) 1 W.L.R. p.646 (6) (1960) 1 W.L.R. p.1273 (7) (1876) 4 Ch.D.246. (8) (1874) 9 Ch.Appeals 508. (9) (1951) 2 A.E.R. p.168. IN THE SUPREME COURT OF HONG KONG APPELLATE JURISDICTION CIVIL APPEAL NO. 24 OF 1970 (On Appeal from a Decision in Bankruptcy No. 31 of 1967) -----------------
----------------- Coram: Full Court (Hon. Blair-Kerr, Mills-Owens & Pickering JJ.) ----------------- JUDGMENT ----------------- 117. Mille-Owens J.: The estate of the deceased debtor became liable to be administered according to the rules in bankruptcy in consequence of an order made under section 112 of the Bankruptcy Ordinance (Cap.6), which is based on section 130 of the Bankruptcy Act, 1914; by virtue of the section Part III of the Ordinance applies and Part III includes provisions relating to proof of debts. 118. Reference has been made to section 83 of the Ordinance, whereby any person aggrieved by any act or decision of the trustee may apply to the Court, but I think that the matter of proof of debts is dealt with, rules may be made as to the admission and rejection of debts; the rules made thereunder, at present in force, are the Proof of Debts Rules, which were enacted in 1931. 119. The rules deal with various situations, This is not a case of a trustee seeking to have expunged, by the court, a proof admitted by him (to which rule 23 applies), nor is it the case of a creditor who, being dissatisfied with the trustee's rejection of his proof, applies to the Court to reverse or vary the trustee's decision (to which rule 24 applies). No doubt, in both such cases the trustee is a proper party to the proceedings in court. This is a case of an objecting creditor applying to the court, being dissatisfied with the admission by the trustee of the proof of another creditor, where the trustee has declined to interfere on representations being made to him by the creditor seeking to have the admitted proof expunged; that is to say where the trustee declines to move the court himself under rule 23 to have the proof expunged. The appropriate rule in this case, therefore, is rule 25. Where that rule applies I seriously doubt whether the trustee is a proper party to the proceedings in court. In such a case there is no occasion for the trustee to represent the interests of the general body of creditors, at least in the absence of special circumstances. The competing parties are the two creditors. In the present case the trustee's representatives thought fit to resist any investigation, by the court, of the substance of the proof admitted by the trustee. I cannot but think that such a course is wrong. The trustee's duty in such a case is to hold no brief for either side, but, to afford all possible assistance to the parties, and thus to the court in its investigation of the proof to which objection is taken by the competing creditor. 120. It was argued by counsel for the appellant that once the trustee admits a proof the objecting creditor assumes an onus of proving that the trustee was wrong in admitting it; that is to say, that once the proving creditor has discharged, to the satisfaction of the trustee, the burden of proof of the debt, initially resting upon him, the onus shifts to the objecting creditor to prove - and, as counsel argued, to prove conclusively - that there is no such debt or that the proof should be varied. I cannot accede to that contention. I cannot perceive any basis Upon which it can be said that a proof is to be presumed valid, or acquires a particular cachet, simply because the trustee admits it. In such a matter the trustee is not a court of law or a judicial tribunal from whose judgment an appeal is brought to the court. The objecting creditor is entitled to have the proof examined by the court; to require that there be substituted, for an examination of the proof by the trustee, an investigation thereof by the court. In effect the objecting creditor requires, and is entitled to require, the matter of the proof to be referred to the court, which then proceeds to investigate the claim de novo. In my view, the judgment of Buckley J. in In re Kentwood Constructions Ltd.(1) is entirely apposite to the present case. The case of In re Browne(2), relied upon by counsel for the appellant, is an entirely different case, where, with respect, I would have thought it entirely right to apply the maxim 'omnia praesumuntur', in the circumstances as they appear in the judgment of Cross J. iIn my view, also, the case of In re Yick Fat Land Investment Co. Ltd.(3) has no bearing whatsoever on this which is concerned with the proof of a debt, for which specific provision is made by the rules made under section 36. 121. As to the facts of this case, I entirely agree, for the convincing reasons given by my Lord the President in his judgment, which I have had the advantage of reading, that the proof of the appellant was properly expunged by the learned judge. (1) [1960] 1 W.L.R. 646 (2) [1960] 1 W.L.R. 692 (3) (H.K.) Company Winding-up No. 4 of 1966. IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO. 24 OF 1970 (On appeal from Bankruptcy No.31 of 1967) -----------------
----------------- Coram: Full Court (Hon. Blair-Kerr, Mills-Owens & Pickering, JJ.) ----------------- JUDGMENT ----------------- 122. Pickering J.: I have had the opportunity and advantage of studying the judgments of the learned president and of my learned brother Mills-Owens J. In the light of the very thorough examination of the Appellant's claim, of the status in these proceedings of the trustee and of the rights of the Respondent objecting creditor contained in those judgments, I am satisfied that anything which I might add would result in superfluity. I concur in the judgments delivered. |