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HCB 7887/2020
[2021] HKCFI 3143
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
BANKRUPTCY PROCEEDINGS NO 7887 OF 2020
________________________
| RE: |
CAO ZHONG (曹忠) |
Debtor |
| EX-PARTE: |
BILISTYLE INVESTMENTS LIMITED |
Petitioner |
________________________
Before: Mr Recorder William Wong SC in Court
Date of Hearing: 26 August 2021
Date of Judgment: 27 October 2021
________________________
J U D G M E N T
________________________
A. INTRODUCTION
1.This is the substantive hearing of the bankruptcy petition presented by Bilistyle Investments Limited (the “Petitioner”) on 25 November 2020 (the “Petition”).
2.The Petition was founded on a debt of $149,209,289.16 (the “Debt”) owed by Mr Cao Zhong (the “Debtor”) to the Petitioner pursuant to a Loan Agreement dated 19 April 2017 (the “Loan Agreement”) entered into by the parties.
3.There is also before the Court an application by way of summons filed by the Debtor on 12 August 2021 supported by the Lau 4th Affirmation (the “Leave Application”) seeking leave to adduce further evidence, namely, (1) the Cao 3rd Affirmation; and (2) the Miao 1st Affirmation.
B. BACKGROUND
4.The background facts are fairly straightforward and may be summarised as follows.
5.On 19 April 2017, the Petitioner (as lender) entered into the Loan Agreement with the Debtor, Mr Miao Zhenguo (“Mr Miao”) and Mr Chen Yanping as joint and several borrowers (together, the “Borrowers”).
6.The Loan Agreement provided that the principal amount of the loan was HK$120 million (or an amount equivalent to HK$120 million in such alternative currency as acceptable to and agreed by the Petitioner). The term of the loan was 2 years from the drawdown date or such other date as agreed in writing between the Petitioner and the Borrowers.
7.At part of the transaction under the Loan Agreement, the Borrowers delivered the following to the Petitioner:
(1) Various post-dated cheques issued and signed by the Borrowers. Eight of these post-dated cheques were issued and signed by the Debtor, and in aggregate, expressed that a total sum of HK$168 million was payable to the Petitioner. The cheques were drawn from the Debtor’s Hong Kong bank account at Hang Seng Bank; and
(2) Various security documents (together, the “Security Documents”) for the purposes of effecting an equity pledge (the “Security”) over 49.83% equity interest in 北京紫荊聚龍科技投資公司 (the “Beijing Company”).
8.On about 19 April 2017, the Borrowers made a drawdown pursuant to the Loan Agreement by issuing a Drawdown Notice to the Petitioner. A total sum of HK$120 million was advanced to the Borrowers (HK$60 million to Mr Miao and RMB 50 million to a company nominated by the Borrowers) on behalf of the Petitioner.
9.The Borrowers are said to have made interest payments amounting to HK$42 million. However, when the principal loan fell due on 19 April 2019, the Borrowers (including the Debtor) failed to repay the same.
10.On 15 and 30 August 2019, the Borrowers made further interest payments of RMB 4 million and RMB 6.68 million respectively, totalling RMB 10.68 million, to the Petitioner. Such payments were made by 杭州紫聚投資管理有限公司, a company said to be controlled by the Debtor and/or Mr Miao.
11.Around the end of September 2019, the Petitioner attempted to deposit various post-dated cheques issued by the Debtor and Mr Miao but the cheques were returned.
12.The Debt, amounting to HK$149,209,289.16 as at 17 January 2020, remains due and payable by the Borrowers to the Petitioner.
13.On 17 January 2020, the Petitioner issued a statutory demand (the “Statutory Demand”) in respect of the Debt against the Debtor.
14.On 31 January 2020, the Petitioner advertised the Statutory Demand in the Hong Kong Economic Journal and China Daily.
15.The Debtor failed to repay the sums demanded under the Statutory Demand. On 25 November 2020, the Petitioner proceeded to present the Petition against the Debtor.
16.The Petition is opposed by the Debtor on the following 4 grounds:
(1) The Debtor is not domiciled in Hong Kong and does not fall under any of the jurisdictional gateways under §4 of the Bankruptcy Ordinance (Cap 6) (“the Ordinance”);
(2) The Petitioner has failed to do all that is reasonable to bring the Statutory Demand to the Debtor’s attention;
(3) The Debt is fully secured by the 49.83% shareholding interest in the Beijing Company; and/or
(4) There is a bona fide dispute as to the terms of repayment of the loan arising from the circumstances under which the signature pages of the Loan Agreement (and the Security Documents) came to be signed.
C. DEBTOR’S APPLICATION TO INTRODUCE FURTHER EVIDENCE
17.In the the Leave Application, the Debtor seeks leave to adduce the following affirmations:
(1) The Cao 3rd Affirmation which is said to contain a substantive response to the matters in the Petitioner’s reply affirmation (i.e., the Che 2nd Affirmation) and seeks to exhibit voluminous materials. He also seeks leave to refer to the Lau 2nd Affirmation and the Cao 2nd Affirmation filed in support of his withdrawn security for costs application; and
(2) The Miao 1st Affirmation which supposedly authorises the Debtor to rely on the 1st, 2nd, 3rd and 4th affirmations of Miao Zhenguo filed in HCB 6489/2020, which are proceedings relating to the Petitioner’s bankruptcy petition against Mr Miao.
18.Unsurprisingly, the Leave Application is opposed by the Petitioner who contends that it was made very late and it is seriously prejudiced by such application.
19.At the hearing, Mr Maurellet SC for the Petitioner indicated that the Petitioner has no objection if the Court were to read the two affirmations on de bene esse basis. Insofar as evidence that is in reply to new allegations that are relied upon by the Petitioner in its reply evidence, I am of the view, in the interest of overall justice, though the Debtor is obviously late in making the application, this Court would exceptionally allow the Debtor to response to them. However, that should be the limit of the new evidence to be relied upon.
20.In my view, the correct approach as to late applications to adduce further evidence is described in Parsad v Great Wealthy Engineering Co Ltd [2012] 3 HKLRD 705 at [5]-[8] per Bharwaney J. That case concerned a late application for leave to rely on further witness statements but I would consider such principles to be equally applicable in the present context and indeed those instances in which an applicant seeks to introduce further affidavit evidence at a late stage.
21.As explained in Parsad, the guiding principle is that the court’s discretion must be exercised within the ambit of the Court’s management powers and in light of the objectives of the CJR as described in Order 1A.
22.The learned judge stated that:
“Whilst the primary aim is to secure the just resolution of the dispute in accordance with the substantive rights of the parties, and which must include the right of a party to rely on admissible, relevant and probative factual evidence, the Court must also have regard to other relevant circumstances, such as the potential disruption to the trial, the prejudice to the other parties, and the explanation offered by the applicant for the late application. These matters have to be considered and weighed in the light of and against the underlying objectives of Civil Justice Reform to ensure cost effectiveness and economy, expedition, proportionality, and fairness between the parties.” (see [6] per Bharwaney J).
23.To summarise, the relevant considerations for a judge exercising his discretion are:
(1) the merits of the proposed application: whether the application if granted would assist the court in securing the just resolution of the dispute in accordance with the substantive rights of the parties;
(2) whether there is any disruption to the trial or any milestone date;
(3) the presence or absence of any real prejudice to the other party;
(4) any conscious flouting of the rules of court, practice directions and/or case management directions/timetables, or any over-reaching or deliberate maneuvering on the part of the applicant; and
(5) the objectives of the CJR.
See also: Wong Tat Lun Eddie v Wong Chi Ho Jimmy, unrep., HCMP 2391/2013, 21 October 2014, at [55]-[58] per DHCJ B Chu (as she then was).
24.It should be borne in mind that a late application to introduce new evidence has a fairly high threshold to pass: Wise Union Industries Limited v Hong Kong Science Technology Parks Corporation, unrep., HCAL 12/2009, 21 September 2009, at [2] per Andrew Cheung J (as he then was).
25.Where there has been delay on the part of the applicant in making the application, it has been held that delay itself is a ground for justifying refusal of leave particularly when the application may affect or put at risk any milestone dates. At the very least, the applicant must show exceptional circumstances to explain and justify the delay. See Hong Kong Changyi Real Estate Development Ltd v Neo-China (Group) Infrastructure Investment Ltd, unrep., HCA 1576/2011, 25 February 2014, at [1] and [3] per Mimmie Chan J.
26.Applying these principles to the present case:
(1) There is no question that the Leave Application was made very late. To be precise, it was filed two weeks before the substantive hearing of the petition and a week before the Petitioner’s skeleton was due to be lodged. This is notwithstanding the fact that Linda Chan J had made an order on 1 March 2021 stipulating that no further affirmations were to be filed without leave of the Court. I am also told that at the hearing on 1 March 2021 (at which both parties were represented by Counsel), Linda Chan J had rejected the Debtor’s request for another opportunity to file further evidence in opposition to the Petition.
(2) No satisfactory explanation has been proffered by the Debtor to explain the serious delay in making the Leave Application. The Debtor argues that he has been present in Mainland China and subject to various travel/quarantine restraints due to Covid-19. These are unconvincing reasons – to the extent that physical travel has been challenging (but not impossible) there is no reason why the work could not be done remotely and with some degree of resourcefulness. Since the outbreak of Covid-19, people and businesses have resorted to technological solutions to cope with the pandemic. Litigants should be expected to do the same and ought not to expect the Court to be sympathetic to such excuses unless they are able to show the existence of exceptional circumstances.
(3) As to the Debtor’s complaint that the Petitioner’s reply affirmation (i.e., the Che 2nd Affirmation) raises a number of new issues, I note that the Che 2nd Affirmation was filed on 26 May 2021. It should not have taken the Debtor almost 3 months to consider, take legal advice and decide on whether it was necessary to respond to the matters in the Che 2nd Affirmation. And then having decided on that course of action, the Debtor failed to give the Petitioner sufficiently advance warning about the intended Leave Application or even a precis of the evidence sought to be introduced until it was lodged at the eleventh hour. This is unsatisfactory to say the least.
(4) Moreover, having considered the evidence on a de bene esse basis, it appears to me that most (if not all) of the matters raised in the new affirmations were within the Debtor’s personal knowledge and available at the time of filing of the Debtor’s opposition affirmation in April 2021. That the Debtor deliberately made the decision to not lodge such evidence earlier is his own fault.
(5) The evidence the Debtor is seeking to adduce is voluminous and amounts to more than 1300 pages of evidential materials. I agree with the Petitioner that the sheer volume of the material, the timing of the Leave Application and the manner in which the Debtor has sought to introduce such evidence is prejudicial to the Petitioner.
(6) I struggle to see how it can be said that there is any basis to adduce the Miao 1st Affirmation when no leave has been sought to adduce matters in HCB 6489/2020, i.e., another set of unrelated proceedings, and in any event, Mr Nip SC for the Debtor barely even sought to rely on such matters (if at all) in his submissions.
(7) As to the Debtor’s attempt to adduce matters in the withdrawn security for costs application, as Mr Maurellet SC submits, the fact that an affidavit has been used on an interlocutory application (in this case a withdrawn application) gives no power to the court to order that it be read at trial. See Hong Kong Civil Procedure 2021 §38/2/1.
(8) That being said, I consider there are certain matters in the Cao 3rd Affirmation relating solely to the jurisdictional gateways and the circumstances relating to the service of the Statutory Demand that may have probative value and might assist the court in securing a just and correct resolution of the issues in this dispute. Further, it would appear to me that the introduction of such matters would not cause the Petitioner to suffer serious and undue prejudice.
27.Accordingly and looking at the matter in the round:
(1) I grant leave to the Debtor to adduce further evidence in relation to the jurisdictional gateways and the circumstances relating to the proper service of the Statutory Demand, i.e., §§5 to 10 of the Cao 3rd Affirmation.
(2) Leave is refused for the Debtor to adduce any further evidence other than that described in §27(1) above.
D. 1ST GROUND OF OPPOSITION: WHETHER THE PETITIONER SATISFIES ANY OF THE JURISDICTIONAL GATEWAYS
28.Pursuant to §4(1) of the Ordinance, a bankruptcy petition can only be presented against a debtor who:
(1) is domiciled in Hong Kong (“Domicile Ground”);
(2) is personally present in Hong Kong on the day on which the petition is presented (“Physical Presence Ground”); or
(3) at any time in the period of 3 years ending with that day of the presentation of the petition (i) has been ordinarily resident (“Ordinarily Resident Ground”), or has had a place of residence in Hong Kong (“Place of Residence Ground”); or (ii) has carried on business in Hong Kong (the “Carried on Business Ground”).
29.These constitute what are often called the “jurisdictional gateways”.
30.In the present case, the Petitioner relies on (1) the Ordinarily Resident Ground; (2) the Place of Residence Ground; (3) the Carried on Business Ground and (4) the Domicile Ground. The Petitioner does not seek to rely on the Physical Presence Ground.
D1 Preliminary points
31.As a preliminary point, Mr Nip SC for the Debtor takes exception to the fact that the Petitioner has relied on an additional ground that was apparently not expressly “pleaded” in the Petition. He argues that this may cause unfairness or prejudice to a debtor who may have prepared his evidence to address one ground but not the other, or otherwise put a debtor in a difficult position when putting together evidence to address the grounds relied on by the petitioner.
32.In my view, this criticism is incorrect:
(1) The general principle is that it is not necessary for the facts on which jurisdiction is based to be mentioned in the petition. It would usually suffice if the petitioner sets out the petitioning debt and the grounds on which the bankruptcy order is sought, as it is for the debtor to raise a challenge to the court’s jurisdiction under §4 of the Ordinance: see e.g., Re Patrick Major Lee, unrep., HCB 3448/2008, 29 July 2009 at [24] per Barma J (as he then was); and Re Cai Sui Xin [2019] 6 HKC 329 at [8]-[11] per Anthony Chan J.
(2) The burden of raising a jurisdiction challenge being placed on the debtor is apparent from Rule 68 of the Bankruptcy Rules (Cap 6A) (“BR”) which provides that:
“Debtor intending to show cause
Where a debtor intends to show cause against a petition, he shall file a notice with the Official Receiver specifying the grounds on which he intends to show cause, and shall post to the petitioning creditor or to his solicitor a copy of the notice, in each case 3 days before the day on which the petition is to be heard.”[emphasis added].
(3) The notice to be filed by the debtor is contained in Form 17 of the Bankruptcy (Forms) Rules (Cap 6B).
(4) Contrary to the Debtor’s submission, there is no requirement under Rule 50(2) of the BR or Form 10 of Cap 6B that requires a petitioner to state the jurisdictional grounds under §4 of the Ordinance relied upon by the Petitioner.
(5) This should be contrasted with the approach taken in respect of winding up a company under Section 327 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32), which requires the jurisdictional basis to be specifically pleaded: see Re Li Shu Chung, ex p Li Sin Man Seline [2019] HKCFI 2500 at [59] per Au-Yeung J; Dai Guoliang v Sino Pacific Global Multi-Strategy Fund [2019] 2 HKLRD 332 at [32] per DHCJ Maurellet SC.
(6) It is perhaps worth mentioning that this is merely a “pleading” point; it does not reverse the evidential burden which continues to rest with the petitioner: see e.g., Re Chow Kam Fai David [2004] 1 HKLRD 161 at [15] per DHCJ To. Accordingly, I am of the view that it is incorrect to say that this places an undue burden on a debtor to prepare the relevant evidence.
(7) In any event:
(a) The Petitioner does in fact mention in the Petition (i) the various last known addresses of the Debtor; and (ii) that the Debtor is said to be domiciled in Hong Kong. Having had sight of these matters, the Debtor ought to have been alive to the Petitioner’s position and disputed the same by raising a jurisdiction challenge at the earliest opportunity.
(b) Further, given that I have granted leave to the Debtor to adduce responsive evidence in respect of this issue, I consider that the Debtor would not suffer any actual unfairness and prejudice.
D2 Jurisdictional gateways
33.Given the discussion that transpires below, it makes sense to first address the parties’ submissions on the jurisdictional gateways set out in §4(1)(c) of the Ordinance and then, to the extent necessary, deal with any residual points arising out of the Petitioner’s reliance on §4(1)(a) of the Ordinance, i.e., the Domicile Ground.
(1) Ordinarily Resident Ground
34.The applicable test for ordinary residence is not in dispute between the parties. Mr Nip SC for the Debtor correctly cited the summary contained in Re Wong Lei Kwan Joanne [2009] 3 HKLRD 173 at [16] per Barma J (as he then was), which provides that:
(1) The term “ordinarily resident” construed according to its natural and ordinary meaning refers to a man's abode in a particular place or country which he has adopted voluntarily and for settled purposes as part of the regular order of his life for the time being, whether of long or short duration.
(2) In other words, the person must be habitually and normally resident in that particular place, apart from temporary or occasional absences of long or short duration.
(3) The words “habitually" refers to two necessary features, namely (i) residence adopted voluntarily and (ii) for settled purposes.
(4) In relation to (ii), the learned judge said that “there must be a degree of settled purpose…all that is necessary is that the purpose of living where one does has sufficient degree of continuity to be properly described as settled” [emphasis added].
35.I agree with the above. I would also add the following points:
(1) The question of whether a debtor is ordinarily resident in Hong Kong within the relevant period was one of fact and degree: Re Kok Hiu Pan [2002] 3 HKLRD 20 at [27] per Kwan J (as she then was).
(2) It is not necessary for the petitioner to show that the debtor was ordinarily resident in Hong Kong throughout the period of 3 years. The consideration is whether the debtor was ordinarily resident in Hong Kong of unspecified duration at any time during the period of 3 years: Re Li Shu Chung [2019] HKCFI 2500 at [49] per Au J (as he then was).
(3) Nor is the petitioner required to show that the debtor had any intention to remain in Hong Kong permanently or indefinitely (in contrast to the requirements of domicile): see Sheldon, Cross-Border Insolvency, 4th ed (2015), at §§8.32 and 8.35. The learned authors also opined that “in the broadest terms, ordinary residence means simply where a debtor normally lives, albeit for a temporary period.”
(4) A person can have ordinary residence in more than one country at the same time. Temporary or occasional absences of long or short duration do not negative ordinary residence: see Re Li Shu Chung (supra) at [50].
36.Applying the principles above, I have no hesitation in finding that the Debtor was ordinarily resident in Hong Kong during the relevant period of 3 years, i.e., between 25 November 2017 and 25 November 2020 (the “Relevant Period”), for the following reasons:
(1) It is not disputed that the Debtor is the sole legal owner of Unit 13D of Lotus Mansion 6 Taikoo Wan Road, Taikoo Shing, Hong Kong (“Taikoo Address”). On the Debtor’s own evidence, he and his wife purchased Units 13C and 13D of the Taikoo Address together. The two units were subsequently combined into one unit. The Taikoo Address was apparently acquired as far back as 2008.
(2) The Debtor concedes that he would stay at the Taikoo Address whenever he was in Hong Kong for business reasons. However he claims that since separating from his wife in 2017, he would no longer stay at that address. But that is neither here nor there. To the extent that the Taikoo Address might no longer be his place of residence (see §39 et seq below), what the Debtor’s concession establishes is that:
(a) the Taikoo Address was previously the Debtor’s place of residence;
(b) he had habitually lived at that address when he was in Hong Kong for family and/or business purposes (i.e., for “settled purposes”);
(c) it cannot be seriously contested that he was ordinarily resident in Hong Kong at least until 2017;
(d) yet the Debtor continued to be habitually present in Hong Kong for business or family purposes even after 2017 (at which time the Debtor seems to suggest he resided at another undisclosed address in Hong Kong);
(e) on the Debtor’s own case, he was in Hong Kong for 85 out of 365 nights between 1 November 2017 to 31 October 2018. Such evidence can only show that the Debtor’s residence in Hong Kong – irrespective of whether it was for a long or short duration – remained part of the regular order of the Debtor’s life; and
(f) it must follow that the Debtor was still ordinarily resident in Hong Kong after 2017 and accordingly during the Relevant Period.
(3) That the Debtor was residing in Hong Kong for a “settled purpose”, i.e., for business and/or family reasons, is further evidenced by the following facts:
(a) the Debtor’s families have established roots in Hong Kong: his ex-wife and their two children reside in Hong Kong; the Debtor’s mistress and daughter also reside in Hong Kong.
(b) the Debtor’s extensive business ties in Hong Kong: the Debtor is said to have worked in Hong Kong for over 20 years. He is said to hold or has held directorships in a large number of companies based or listed in Hong Kong, which apparently amount to not less than 20 companies. In particular, he is/was the executive director of various Hong Kong listed companies.
(c) the Debtor’s personal bank and/or securities account held with banks and various securities firms based in Hong Kong.
(4) The Debtor’s Hong Kong identity card number (starting with the letter “R”) denotes what I understand to be a residential status affording the Debtor the “right to land” in Hong Kong. Whilst the Debtor might not have permanent residence status, I nevertheless take the view that the Debtor’s current residential status, and having regard to the totality of factors identified above, are strong indicators that he is ordinarily resident in Hong Kong.
(5) That the Debtor might also be ordinarily resident in Beijing does not negative the Debtor’s ordinary residence in Hong Kong (see §35(4) above).
37.For the above reasons, I hold that the Ordinarily Resident Ground is satisfied and accordingly the Court has jurisdiction to enter a bankruptcy order against the Debtor.
38.For completeness, and in case I am wrong in the above analysis, I will briefly address the additional grounds relied on by the Petitioner below.
(2) Place of Residence Ground
39.Insofar as the place of residence is concerned, both parties rely on the English case of Lakatamia Shipping Company Ltd v Hsin Chi Su [2021] EWHC 1866. Leading Counsel for the respective parties have drawn my attention to the following principles extracted from that case:
(1) The “place of residence” must be that of the debtor and not someone else.
(2) The concept of “residence” is different from one of “mere occupation”. The condition of “place of residence”, as with conditions of “domicile”, “ordinary residence” and “carrying on business” all connote a degree of substantiality and continuity of the connection with the jurisdiction, and cannot be satisfied by occupation (in particular if it is fleeting and transient).
(3) To reside is “to dwell permanently or for a considerable time, to have one's settled or usual abode, to live in or at a particular place”, and a place of residence is “a settled or usual place of abode”, and “connotes some degree of permanence, some degree of continuity or some expectation of continuity”.
(4) A place of residence is a de facto situation rather than a matter of legal right such that a licensee may have a place of residence; a moral claim to premises may be sufficient; the premises may also be occupied by others; and it is possible to have a dwelling house without being in occupation during the relevant period.
(5) What is insufficient is where the debtor has temporarily occupied a place of residence of a third party with the permission of a third party.
40.As discussed above, I am of the view that the Taikoo Address had once been the Debtor’s place of residence. However, Mr Nip SC for the Debtor submitted that this was not the case during the Relevant Period given that the Debtor no longer stayed at the Taikoo Address upon his separation from his ex-wife in 2017 and subsequent divorce in 2019.
41.Mr Maurellet SC for the Petitioner relies on paragraph 26 of Lakatamia (supra) and submits that the Petitioner could have stayed at the Taikoo Address up to the time of his divorce in 2019.
42.On this point, some guidance might be derived from Re Brauch [1978] Ch 316 at 335 where Goff LJ stated that:
“I think it may be possible to find that the debtor had a dwelling house in England although he was not in fact in occupation of it at any time during the year. If it be established that he had a dwelling house to start with but he happened to be away throughout the year for a temporary purpose but with intent to return, it may be that on the facts of a particular case one could find he had a dwelling house, but the more there is actual occupation, the easier it is to reach the conclusion that there was a dwelling house, and the shorter the actual occupation, the more difficult it becomes…” [emphasis added].
43.The fact is that the Debtor and his wife were separated during the Relevant Period, which eventually resulted in a divorce in 2019. Although one may infer that given the divorce, the Debtor is unlikely to have intent to return to the Taikoo Address, Mr Maurellet SC for the Petitioner has a point that of the 85 days that the Debtor returned to Hong Kong during the Relevant Period, the Debtor has not stated where he resided. There is no evidence that he only checked in a hotel. I agree that the natural inference is that he resided in the Taikoo Address during the Relevant Period when he was in Hong Kong. Further, the divorce only took place in 2019.
44.The key is where did the Debtor resided whilst he was in Hong Kong. The Debtor accepts that he used to stay in the Taikoo Address when he visited Hong Kong for business, before his divorce from his ex-wife. The Debtor and his ex-wife were only legally separated in July 2019, and the travel records produced by the Debtor show that he often travelled to Hong Kong between November 2017 and August 2019 and stayed overnight.
45.I also note that the Debtor remained the sole legal owner of the Taikoo Address (raised by the Petitioner) and the Taikoo Address was later charged to the Debtor’s ex-wife (raised by the Debtor). Whilst, it is not a requirement that the debtor must have a legal or equitable interest in the place of residence: see Re Brauch (supra) at 334, the fact that the Debtor was the sole legal owner of the Taikoo Address tends to show that it was more likely that he would deploy that as his residential address.
46.I also accept that the Debtor might also return to the place of residence of his mistress in Mid-levels Central. A place of residence can belong to or be managed by someone other than the debtor (e.g. the debtor’s brother in the case of Re Ku Chu Keung (a debtor) [2006] HKCLRT 171.
47.I agree with Mr Maurellet SC for the Petitioner that the Debtor has a place of residence or indeed multiple places of residence in Hong Kong in the 3 years up to November 2020.
48.Accordingly, the Place of Residence Ground has been made out by the Petitioner.
(3) Carrying on Business Ground
49.Mr Nip SC for the Debtor submits that the test for “carrying on business” is not satisfied by merely showing that a person is running a company’s business and this is even so if he is the sole beneficial shareholder and in complete control. He submits that a person is not regarded as carrying on business in Hong Kong simply because he is organising or managing or takes charge of the business of a company in this jurisdiction, whether as a director or otherwise (following from the fundamental doctrine of separate legal personality). The Petitioner relies on the following cases: Re Brauch (supra) at 328 per Goff LJ; Re Kok Hiu Pan [2002] 3 HKLRD 20 at [37] per Kwan J; Re Aiyer Vambu Subramaniam [2014] 5 HKC 203 at [8]-[9] per DHCJ Li Pichon; and Re Chen Mei Huan [2020] 1 HKLRD 409 at [4]-[5].
50.I agree. It seems to me the pertinent factor in this case is that the business or business activities must have been carried out in the Debtor’s own personal capacity, rather than in the capacity of an officer or servant on behalf of another business. The examples raised by the Petitioner – e.g., the Debtor’s directorships and management of various companies, etc – all fall under the latter category. Further, the Debtor’s investments in companies would not constitute “carrying on business” in Hong Kong. Similarly, I am not persuaded that the Debtor’s entering into the Loan Agreement would suffice to show that he carried on business in Hong Kong.
51.I therefore hold that the Carrying on Business Ground is not satisfied.
(4) Domicile Ground
52.The general principles in respect of domicile are succinctly set out by Au J (as he then was) in Re Ip Pui Man Nina [2011] 3 HKLRD 299, which I gratefully adopt:
(1) “Domicile” is a legal concept distinct from "permanent home". The requirements of domicile go beyond those of permanent home. A person who desires to acquire a domicile in a country or place must intend to reside in it permanently or indefinitely.
(2) An independent person can acquire a domicile by, and only by, residing there with the intention to reside there permanently or indefinitely.
(3) In determining whether a person has the intention to reside permanently or indefinitely in a place, the court must have regard to the motive for which he has taken up residence there.
(4) To acquire a domicile in a country or place, a person must freely choose to reside there and must not reside there because he is prescribed or dictated by external factors such as the duties of office, the demands of creditors or the need to seek medical treatment.
(5) If a person has a special purpose for going to and staying there and he will leave that place once the purpose is achieved, then he lacks the intention to stay in that place as required by law and hence cannot acquire a domicile in that place.
(6) The existing domicile of a person is deemed to continue until it is proved that he has acquired a new domicile, and he who asserts a change of domicile bears the burden of proving the truth of the assertion.
(7) As abandonment or change of domicile is a very serious issue and satisfactory evidence is needed to prove an intention to change a domicile.
53.I also agree with the comments made by Arden LJ (as she then was) in Henwood v Barlow Clowes International Ltd (in liquidation) [2008] EWCA Civ 577 at [10]-[15]:
(1) The intention of residence must be fixed and must be for the indefinite future. It is not enough that at any given point in time its length has not been determined.
(2) Given that a person can only have one domicile at any one time for the same purpose, he must have a singular and distinctive relationship with the country or place of supposed domicile of choice. That means it must be his ultimate home or, as it has been put, the place where he would wish to spend his last days.
54.It is not in dispute that the Debtor’s domicile of origin is in Mainland China. The Petitioner contends that the Debtor is now domiciled in Hong Kong, viz., he has changed his domicile. As explained in Re Ip Pui Man Nina (supra), the Petitioner bears the burden of proof of showing a domicile of choice was acquired by the combination of (1) residence; and (2) an intention of permanent or indefinite residence. The Court will not lightly infer change of domicile and there is a strong presumption in favour of continuation of domicile of origin or existing domicile: see Sheldon (supra) at §§8.25-8.26.
55.As the above authorities show, insofar as the Debtor was ordinarily resident in Hong Kong, that is insufficient to show a change of domicile. What must be shown is that such residence was imbued with an intention of staying in Hong Kong permanently or indefinitely. It is the latter that I think is not borne out by the facts of this case.
56.On the Petitioner’s case, the Debtor has worked in Hong Kong for 20 years. Despite his lengthy residence in Hong Kong, the Debtor still has not acquired permanent residency status in Hong Kong despite the convenience and advantages such status might afford. It strikes me that this is suggestive that the Debtor has never had the intention to treat Hong Kong as his “ultimate home”.
57.Further, the Debtor submits that he spends the majority of his time away from Hong Kong. Whilst the length of residence is not a determining or conclusive factor as to one’s intention in this regard, I give weight to the fact that the Debtor is said to not habitually stay in Hong Kong for long durations of time. The necessary inference to be drawn from this is that, in the absence of evidence to the contrary, the Debtor does not consider Hong Kong as his chief residence, and that I believe negates to a considerable extent the suggestion that he considers Hong Kong as his permanent home.
58.Mr Maurellet SC for the Petitioner has helpfully drawn my attention to a litany of business activities in which the Debtor is said to be engaged in Hong Kong. However, I am not persuaded that these activities evidence any intention on the part of the Debtor to change his domicile to Hong Kong. On one view, such activities simply reflect the ordinary business activities of an expatriate in Hong Kong; many expatriates have passed through Hong Kong over the years without having changed their domicile.
59.Insofar as the Debtor’s familial ties in Hong Kong are concerned, I would consider that the existence of such ties is an important piece of evidence of the Debtor’s requisite intention. However, taking all the evidence in consideration, in particular, the relative time the Debtor spent in Hong Kong and the Mainland and given the strong presumption in favour of continuation of domicile, in the absence of definitive evidence which points to a clear intention of the Debtor to change his domicile, I find it difficult to draw the conclusion in this case that the Debtor intended Hong Kong to be his permanent home.
60.On balance, despite my findings in respect of the Debtor’s ordinary residence in Hong Kong, I am not prepared to find on the existing evidence that the Debtor had changed his domicile to Hong Kong.
E. 2ND GROUND OF OPPOSITION: WHETHER THE STATUTORY DEMAND WAS REASONABLY BROUGHT TO THE DEBTOR’S ATTENTION
61.The Debtor’s case is that the Petition should be dismissed because the Petitioner had not complied with Rule 46(2) of the BR. It is common ground that personal service was not effected on the Debtor. The only issue is whether the Petitioner took all reasonable steps to bring the Statutory Demand to the Debtor’s attention.
62.Rule 46(2) of the BR provides that:
“the creditor shall do all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention, and if practicable in the particular circumstances, to cause personal service of the demand to be effected.”
63.There is now a considerable body of authority on what are the reasonable steps a creditor should take to bring the statutory demand to the debtor’s attention. I summarised the general principles in relation to service of a statutory demand in Re Chiu Chi Hong [2020] HKCFI 2486:
(1) If practicable, personal service of the statutory demand should be effected, including attempting to arrange an appointment for personal service through the debtor's solicitors;
(2) If not, the creditor should do all that is reasonable to bring the statutory demand to the debtor's attention, i.e., by making two personal calls to the debtor's address on separate days, the second of which should be by appointment letter.
(3) Failing all other reasonable means of bringing the statutory demand to the debtor's attention, the creditor should apply for substituted service by advertisement of the statutory demand.
(4) The initial burden is on the debtor to show that the petitioner had not done all that was reasonable for the purpose of bringing the statutory demand to the notice of the debtor.
(5) If the Petitioner has done all that are practically reasonable, whether or not the debtor had in fact received the documents is besides the point.
64.It goes without saying that failure to serve the statutory demand is an extremely serious matter. It is not just a formal defect or irregularity, it renders defective the petition founded on the statutory demand: see Re Lam Chik Sing [2009] 2 HKLRD 107 at [17] per Kwan J (as she then was). Service of the statutory demand, in my view, goes to the Court’s jurisdiction for the purposes of §6A of the Ordinance.
65.I agree with the learned justices in Re H (a debtor) [2000] BPIR 661 who, referring to the English equivalent of Rule 46(2), characterised the applicable burden on the creditor as a high one. However, whether a creditor had met the test is also a question of fact: p. 665 per Nourse LJ and Mantell LJ. Ultimately, the test is one of reasonableness in the particular circumstances of each individual case. As Andrew Cheung J (as he then was) said, no hard and fast rule can be laid down and a creditor does not have an unlimited obligation to “play detective”: see Re Li Wang, unrep., HCB 15846/2003, 30 June 2004 at [19].
66.In the present case, it does not appear to be seriously disputed by the Debtor that the Petitioner had attempted to perform the steps expected of the Petitioner under §2.6 of PD 3.1 at the Debtor’s addresses known to the Petitioner. These include:
(1) Making at least two personal calls to each of the Debtor's four addresses known to the Petitioner, including the three office addresses of the listed companies in Hong Kong of which the Debtor was a director and the Taikoo Address (which the Petitioner seems to have presumed was the Debtor’s residential address at the time) to attempt personal service of the Statutory Demand on the Debtor.
(2) One of these addresses, i.e., Rooms 3001-3305, 30th Floor, China Resources Building, 26 Harbour, Wanchai, Hong Kong, was the Debtor’s address for notices as provided under the Loan Agreement. Clause 20 of the Loan Agreement (the “Notice Clause”) stipulates that:
“20.1 Any notice or other communication to be given or made pursuant to this Agreement shall be in writing and may be made by personal delivery…and shall be deemed to have been duly served, if delivered personally, at the time of delivery…
20.2 Each notice or other communication to be given or made under this Agreement shall be delivered or sent to the relevant party at their addresses or fax numbers set out below...Cao Zhong (曹忠) Rooms 3001-3305, 30th Floor, China Resources Building, 26 Harbour, Wanchai, Hong Kong…
…20.3 Each party shall notify the others of changes of its address for service from time to time but shall always provide an address for service within Hong Kong.”
(3) The Petitioner made inquiries with receptionists, caretakers and the Debtor’s neighbours as to the whereabouts of the Debtor and when the Debtor would return to the address but this was apparently met with little success. In the Che 2nd Affirmation, it is said that a lady at the Taikoo Address informed the Petitioner’s process server that the Debtor “lived there but was not present at the moment, and she did not know when he would come back”.
(4) The calls were made on weekdays and at reasonable hours, with intervals of about 1 to 2 weeks.
(5) The second call was made by way of letters of appointment together with copies of the Statutory Demand sent to the Debtor by ordinary post which stated that the Petitioner would serve the Statutory Demand by advertisement and by ordinary post if the Debtor failed to keep the appointment.
(6) Such calls to the Debtor’s addresses took place in January 2020. The Petitioner also attended the new address of one of the companies in which the Debtor was a director.
(7) On 31 January 2020, the Petitioner advertised the Statutory Demand in the Hong Kong Economic Journal and China Daily.
(8) The Petitioner also sent the Statutory Demand to the Debtor on 31 January 2020 and 19 August 2020 by way of ordinary post.
67.The Debtor, on the other hand, contends that:
(1) The service attempts could not have been successful as the Debtor was not and has not been in Hong Kong since 15 August 2019. He says that the Petitioner must have known about this for the following reasons:
(a) Jamie Che of the Petitioner (“Mr Che”) knew the Debtor was in Hangzhou on 25 October 2019 for a business meeting;
(b) Mr Che and the Debtor had both attended various board meetings at which the Debtor attended by way of telephone and the Debtor claims this ought to have put Mr Che / the Petitioner on notice that the Debtor was not in Hong Kong; and
(c) WeChat messages were exchanged between the Debtor and the company secretary of FDG Kinetic Limited (in which the Debtor serves as a director), showing that the company secretary was aware that the Debtor would be dialling in from Hangzhou or Beijing.
(2) He denies having knowledge of the Statutory Demand advertised with the Hong Kong Economic Journal and China Daily.
(3) The Petitioner failed to take reasonable steps to bring the Statutory Demand to his attention by the following means:
(a) delivery of the Statutory Demand at the Debtor’s residential address in Beijing;
(b) by telephone call to the Debtor’s various PRC and Hong Kong phone numbers (some of which Mr Che is said to be aware of) or WeChat; or
(c) by email to the Debtor’s two email addresses.
68.Having reviewed the evidence, I am not persuaded that the Petitioner was aware (via Mr Che or otherwise) that the Debtor was not in Hong Kong on 31 January 2021 or the other material times that it attempted to serve the Statutory Demand on the Debtor. The fact that the Debtor was in Hangzhou on 25 October 2019 does not mean that he was not in Hong Kong at the time when the Statutory Demand was served. I am not satisfied that the circumstances described in §67 above amount to actual or constructive knowledge on the part of the Petitioner that the Debtor was not in Hong Kong and as to his exact whereabouts at the material times. There is also no evidence to suggest that the Petitioner was aware of the Debtor’s Beijing address nor the Debtor’s residence there.
69.Moreover, I have had regard to the fact that the Debtor’s families are resident in Hong Kong (both his family with his ex-wife and the woman said to be his mistress). Mr Maurellet SC for the Petitioner submits that it was reasonable for the Petitioner to expect that the Debtor’s families in Hong Kong would have informed the Debtor of the Statutory Demand upon having received a copy of the same and/or having sight of the advertisement of the Statutory Demand. I agree.
70.I also place particular weight on the Notice Clause contained in the Loan Agreement:
(1) The Debt upon which the Statutory Demand and the Petition are founded arises out of the Loan Agreement.
(2) Pursuant to the Loan Agreement, the parties expressly covenanted to give any notice or other communication pursuant to the Loan Agreement in accordance with the terms of the Notice Clause.
(3) The Statutory Demand is not, strictly speaking, a notice or communication made pursuant to the Loan Agreement. But it is a natural consequence of the Debtor’s failure to perform the obligations under the Loan Agreement and a means through which the Debtor’s breach of the Loan Agreement might be formally communicated by the Petitioner to the Debtor.
(4) I note that the Loan Agreement expressly stipulated that the Debtor (i) shall always provide an address for service within Hong Kong; and (ii) was obligated to notify the other parties of changes of his address for service from time to time. There is no suggestion that the Debtor ever notified the Petitioner that his address for service had apparently changed from the address provided in the Notice Clause, or that there were other permissible ways to give notice to the Debtor.
(5) In such circumstances, I consider that it was reasonable for the Petitioner to continue relying on the address and state of affairs as described in the Notice Clause when seeking to bring attention of the Statutory Demand to the Debtor.
71.The Debtor in his affirmation denies having received a copy of the Statutory Demand until he was provided with the same by his legal advisers after the commencement of the proceedings. I find such claim quite incredible if not potentially misleading. What was left unsaid is whether and when the Debtor actually became aware of the Statutory Demand and/or the contents thereof even though he might not have received a copy of the Statutory Demand until later. Given that the Debtor has not adduced any evidence as to when he first received notice of the Statutory Demand, nor has he denied having knowledge of the same, the inference to be drawn is that the Debtor was aware of the Statutory Demand and/or its contents at the material times.
72.At the end of the day, what tips the balance is the fact that the Statutory Demand was posted to Rooms 3001-3305, 30th Floor, China Resources Building, 26 Harbour, Wanchai, Hong Kong. The Statutory Demand was not returned. I agree that in the normal course of events, an important document such as the Statutory Demand would have found its way to the Debtor. The Debtor has not stated in his affirmations as to whether he had enquired with the receptionist of the company and/or found out where had the Statutory Demand gone. Mr Maurellet SC submitted that one can only expect that unless something unusual happened, the Debtor would have received the Statutory Demand in a company where he acted as a director. I agree. Mr Nip SC for the Debtor also agreed that the Debtor did not depose as to what happened after the Statutory Demand was received. He had made no inquiries.
73.Hence, I am of the view that the Petitioner has done all that is reasonable to bring the Statutory Demand to the attention of the Debtor.
74.Finally, I agree with Mr Nip SC that in the normal course of events all that is reasonable should include sending the Statutory Demand by way of known email addresses or through other electronic means, like WeChat and/or WhatsApp. Indeed, the Court would have expected a petitioner to do all that is reasonable to bring the Statutory Demand to the attention of a debtor.
75.However, on the special facts of the present case, I accept the Petitioner’s explanation that, knowing the Debtor did not check his own email messages, it would be an exercise in vain for the Petitioner to serve through a means where the Petitioner knew would not have reached the Debtor.
76.I also accept that by the time the Statutory Demand was issued, the relationship between the Petitioner / Mr Che and the Debtor had broken down to the extent that they were no longer communicating by telephone or WeChat. Given that previous telephone calls and WeChat messages sent from Mr Che to the Debtor were ignored or had gone unanswered, I accept that the Petitioner genuinely laboured under the (perhaps mistaken) belief that there was no utility in communicating with the Debtor through such channels.
77.The burden to be discharged by the Petitioner is not to exhaust every single means to bring the Statutory Demand to the Debtor’s attention but to do what was reasonable in the circumstances. In the present case, the arguments are very finely balanced. On balance, I take the view Petitioner had taken reasonable steps to bring the Statutory Demand to the Debtor’s attention and accordingly satisfied the requirement under Rule 46(2) of the BR.
78.Notwithstanding this, and in keeping with the sentiments already expressed above, the Court in the future would generally expect litigants to properly utilise technological solutions such as SMS, WeChat, WhatsApp and/or other instant communication applications (to the extent such means are available and viable) to bring a statutory demand to the attention of a debtor where possible.
F. 3RD GROUND OF OPPOSITION: WHETHER THE DEBT WAS FULLY SECURED
79.The Debtor submits that the Petitioner was fully secured and in such circumstances, the Court is not entitled to make a bankruptcy order. The Debtor also submits that the Statutory Demand was defective as the Petitioner had ascribed a value of “nil” to the Security and liable to be set aside; and given the existence of the Security, the Debtor would be able to have any bankruptcy order annulled under §33(1)(b) of the Ordinance.
80.In my view, and despite Mr Nip SC’s valiant efforts, I am not persuaded that these submissions are correct.
81.The starting point is §6B(1) of the Ordinance which provides that:
“(1) a debt which is the debt, or one of the debts, in respect of which a creditor’s petition is presented need not be unsecured if either
(a) the petition contains a statement by the person having the right to enforce the security that he is willing, in the event of a bankruptcy order being made, to give up his security for the benefit of all the bankrupt’s creditors; OR
(b) the petition is expressed not to be made in respect of the secured part of the debt and contains a statement by that person of the estimated value at the date of the petition of the security for the secured part of the debt.”[emphasis added ].
82.Also applicable is Rule 44(5) of the BR which provides that:
“… If the creditor holds any security in respect of the debt, the full amount of the debt shall be specified, but—(a) there shall in the statutory demand be specified the nature of the security, and the value which the creditor puts upon it as at the date of the demand; and (b) the amount of which payment is claimed by the demand shall be the full amount of the debt, less the amount specified as the value of the security.”[emphasis added ].
83.In the present case, §8 of the Petition explicitly states that “we hold security for the payment of the above-mentioned sum. We will give up such security for the benefit of all the creditors in the event of a bankruptcy order being made.”
84.This, in my view, is a complete answer to the Debtor’s complaint: the Petitioner has expressly indicated in the Petition that it was prepared to abandon the Security upon a bankruptcy order being made and it is therefore compliant with the requirements under the Ordinance.
85.As to the Debtor’s complaint about the fact that the Petitioner had ascribed a value of “nil” to the Security in the Statutory Demand:
(1) I have summarised in Re Chiu Chi Hong [2020] HKCFI 2486 the general principles in relation to estimating the value of security in a statutory demand or petition, which I will not repeat here. For current purposes, it is only pertinent to note that the Petitioner is required to provide a genuine estimated value and the Court generally would not inquire into the correctness of such estimate unless it was not genuine.
(2) Given the Petitioner’s indication that it was prepared to abandon the Security, I do not consider an estimate of “nil” of the value of the Security in the Statutory Demand can be said to be not genuine under the circumstances.
(3) In any event, it is not at all clear to me how much the Security is worth as no valuation evidence has been adduced by the Debtor in this regard. The Debtor has sought to rely on a purported balance sheet of the Beijing Company but that is of limited assistance to the Court as it does not provide any useful indication as to the value of the Security: amongst other things, the Beijing Company is a private company and the Security is only asserted over a minority stake in the company.
(4) To the extent the Debtor is arguing that by ascribing a value of “nil” to the Security in the Statutory Demand would itself render the Statutory Demand invalid, that would obviously be wrong as a matter of principle. There is no provision under the existing bankruptcy statutory regime that prohibits or fetters a creditor from ascribing a value of “nil” to his security, or stipulates that the effect of making such an estimate would invalidate a statutory demand. The relevant test is simply whether the estimate was a “genuine” estimate and not a sham: see 黃志偉 v Sheung Shui Town Centre Management Ltd, unrep., CACV 257/2011, 6 June 2013; Fletcher, The Law of Insolvency, 5th ed. (2017) at §6-056. This approach reflects how the bankruptcy rules generally operate and what I understand to be market practice. Under Rule 13 of the Proof of Debt Rules (Cap 6E), a petitioner/creditor is entitled to amend his valuation; the value of the security may fluctuate; or, as in this case, the Petitioner was intending to give up its security. It is also consistent with the approach taken in previous authorities: see e.g., 黃志偉(supra) at [11], [18]-[25] per J Lam V-P (as he then was); Barclays Bank Plc v Mogg [2003] EWHC 2645 (Ch) at [25] per Richard J (as he then was).
(5) In the circumstances, I can see nothing wrong with the Petitioner’s actions, having disclosed the existence of the Security and ascribed a value of “nil” to it in the Statutory Demand, then proceeded to indicate that it was its intention to give up the Security for the benefit of the creditors.
86.In case I am wrong on the above analysis, and the Statutory Demand was actually defective, I would consider that such defect or irregularity has not caused the Debtor substantial injustice. In those circumstances, the Petition should not be invalidated under §124(1) of the Ordinance: see Re Chan Chi Loi [2007] HKCLRT 447 at [23]-[30] per Chu J (as she then was).
87.As for the Debtor’s final argument that, in the event the Security is realised and the Petitioner (and any other creditors of the Debtor) are fully paid, the Debtor would be entitled to have the bankruptcy order annulled under §33(1)(b) of the Ordinance. Be that as it may, these are only speculative or hypothetical claims by the Debtor - there is simply no evidence before the Court to show that there is a realistic prospect of realising the Security and upon realisation there are sufficient proceeds to pay off all of the debts of the Petitioner and other creditors of the Debtor (if any).
88.The Debtor’s third ground of opposition must accordingly fail.
G. 4TH GROUND OF OPPOSITION: WHETHER THERE WAS A BONA FIDE DISPUTE TO THE DEBT
89.The Debtor contends that there is a bona fide dispute of the Debt. It is submitted by the Debtor that such dispute concerns the terms of repayment of the loan arising from the circumstances under which the signature pages of the Loan Agreement (and the Security Documents) came to be signed.
90.The governing principles in relation to what constitutes a bona fide dispute of the debt are not in dispute. Both parties accept that the legal principles summarised in my decision in Re Han, Catherine [2019] HKCFI 2271 at [3]-[5] represent the correct approach and apply to the present case. The following points are apposite for present purposes:
(1) the burden is on the debtor to demonstrate to the Court with sufficiently precise factual evidence that there is a bona fide dispute of the petitioning debt on substantial grounds.
(2) it is not enough for a debtor to simply raise some factual disputes and submit that such factual disputes have to be resolved in a trial.
(3) the key is for the Court to assess whether there are real and substantial disputes of fact which render the summary procedure of a bankruptcy and/or winding up proceedings unsuitable for the determination of such real and substantial disputes of fact. In such scenario, the validity of petitioning debt would need to be fully investigated in a trial.
(4) peripheral and/or disputes of fact which do not go to the foundation of the petitioning debt are normally distractions and are irrelevant in determining whether there are bona fide disputes to the petitioning debt on substantial grounds.
91.I am not persuaded that there is a bona fide dispute of the Debt in the present case.
92.First, the actions taken by the Debtor in relation to the Loan Agreement are wholly inconsistent with his denial of the underlying Debt:
(1) the Debtor has performed a number of obligations under the Loan Agreement, including the provision of 8 post-dated cheques. He has also executed an authorisation letter and various Security Documents in accordance with Clause 4.1 of the Loan Agreement;
(2) despite having received multiple chasers in respect of the outstanding debts under the Loan Agreement, the Debtor never disputed his personal liability under the Loan Agreement until his affirmation dated 25 February 2021; and
(3) part payments for the debts owed under the Loan Agreement have been made to the Petitioner on 15 and 30 August 2019.
93.At the substantive hearing before this Court on 26 August 2021, Mr Nip SC for the Debtor sensibly did not contest the above matters.
94.Secondly, to the extent that the Debtor intends to rely on the defence of non est factum, I take the view that no such defence is made out.
95.It is well established that signatures appended to documents by persons of full age and understanding signifies the signatory’s assent or adherence to what that document states. As stated by Ribeiro PJ in Ming Shiu Chung v Ming Shiu Sum (2006) 9 HKCFAR 334 at [84]:
“Where such a person has signed a document which purports to have legal effect, the law has never regarded it as enough to show that he signed without knowing its contents for the document to be disavowed. It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed. But they are held to the documents which they have chosen to sign unless there is shown to be a recognized legal basis for concluding that their apparent consent has been in some way vitiated or that reliance on that document by some other person falls into some category of unconscionable conduct justifying relief in equity.”[emphasis added].
96.The vitiating factors at common law include fraud, mistake, misrepresentation, non est factum, duress, undue influence and lack of mental capacity: see Ming Shiu Chung (supra) at [87].
97.The elements of non est factum are:
(1) The belief of the signer that the person is signing a document of one character or effect whereas its character and effect were quite different;
(2) The need for some sort of disability which gives rise to that state of mind; and
(3) The plea cannot be invoked by someone who has been careless and does not take the trouble to find out at least the general effect of the document.
See: Chitty on Contracts, 33rd ed. (2018), at §§3-049.
98.Here, the Debtor has adduced no evidence other than a bare allegation that the transaction which was agreed upon by the parties differs from the contents of the Loan Agreement. Such contention is lacking in the necessary particulars; crucially, the Debtor has only taken objection to the supposed omission of one particular clause in the Loan Agreement. He has otherwise not adequately explained what were, in the Debtor’s words, the “actual circumstances” of the terms that had been supposedly agreed nor produced credible evidence thereof.
99.Mr Maurellet SC for the Petitioner relies on United Dominions Trust Ltd v Western [1976] QB 513 for the proposition that if a person signs a form in blank, fails to read the document or to ask for an explanation of it, he will normally be held to have failed to exercise sufficient care (see 522B to 523B per Megaw LJ; 523F per Scarman LJ). He submits that the Debtor failed to satisfy the requirements of non est factum as:
(1) the Debtor did not explain the legal effect of the document he thought he was signing; and
(2) the Debtor was apparently content to sign the blank signature page without seeing the body of the Loan Agreement.
100.I agree. I would add that the Debtor is a sophisticated businessman who, on his own evidence, confirms that as a matter of practice he habitually executed documents in this manner. He therefore has a heavy burden of proof and cannot simply point to what only he claims to be an erroneous detail of the document and thereby seek to evade liability. See e.g., Chitty (supra) at §3-053. I would consider that even on his own case, the transaction under the Loan Agreement is essentially the same in substance as the one the Debtor claims had actually been agreed by the parties.
101.In my view, the Debtor has failed to discharge the relevant onus and any defence of non est factum must fail.
102.Thirdly, as to the Debtor’s submission that the Loan Agreement did not reflect the parties’ agreement in respect of a 2 year extension option, there is nothing to this argument. There is no credible evidence nor contemporaneous documents showing that the parties had reached an agreement to that effect and it seems to me such evidence would be inadmissible by operation of the parol evidence rule in any event. Further, it does not appear to be the Debtor’s position that there has been a mistake in the Loan Agreement requiring rectification nor has he asserted the existence of a collateral contract. Indeed, the Debtor’s argument in this regard is directly contradicted by the express terms of the Loan Agreement. Clause 5.2 of the Loan Agreement expressly provides that.
“Notwithstanding the existence of the Repayment Date …the Joint Borrowers shall forthwith ON DEMAND upon service of notice in writing by the Lender repay the Indebtedness or any part thereof in such manner as the Lender shall in its absolute discretion direct.”
103.In light of this, even if there were a 2 year extension option as alleged by the Debtor, the Petitioner would still be entitled to rely on Clause 5.2 to demand immediate repayment irrespective of the term of the loan.
104.In the premises, I hold that the Debtor does not have any bona fide dispute to the Debt and accordingly, in the interest of justice and fairness, I make the usual bankruptcy order against the Debtor.
H. DISPOSITION
105.For the reasons stated above, I make the following orders:
(1) Leave is granted to the Debtor to adduce further evidence only in relation to the jurisdictional gateways and the circumstances relating to the service of the Statutory Demand, i.e., §§5 to 10 of the Cao 3rd Affirmation, and the relevant exhibits;
(2) A bankruptcy order be made against the Debtor;
(3) Costs orders nisi that the Debtor is to pay to the Petitioner the costs of and incidental to:
(a) the Petition on a party to party basis, to be taxed if not agreed;
(b) the Leave Application on an indemnity basis, to be taxed if not agreed, and
The above costs orders nisi shall be made absolute unless the parties take out an application to vary the same within 14 days from the date hereof.
106.Finally, it remains for me to thank Mr Maurellet SC, Ms Ho and Ms Chan for the Petitioner and Mr Nip SC and Mr Oh for the Debtor for their helpful assistance to this Court.
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(William Wong SC) |
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Recorder of the High Court |
Mr José Maurellet SC, Ms Sabrina Ho and Ms Tinny Chan, instructed by P.C. Woo & Co., for the Petitioner
Mr Norman Nip SC and Mr Nicholas Oh, instructed by Li & Partners, for the Debtor
Attendance of the Official Receiver was excused
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