Re So Shing Cho Jacky
Read the full judgment text of HCB 4084/2020 on BabelCite. This HCB judgment was delivered on 24 March 2022.
1. There is before this court an amended bankruptcy petition (“ Petition ”) dated 12 June 2020 presented by the Petitioner against Mr So Shing Cho Jacky (“ the Debtor ”). The Petition is based on the non-compliance with a statutory demand dated 15 January 2020 (“ statutory demand ”) for the sum of around HK$6.19 million. After certain partial set-off by the Petitioner, the petitioning debt is reduced to around HK$6.13 million (“ Debt ”). According to the Petition, on 28 February 2020, the statut
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HCB 4084/2020 [2022] HKCFI 858 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE BANKRUPTCY PROCEEDINGS NO 4084 OF 2020 _________________
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________________ JUDGMENT ________________ Introduction 1.There is before this court an amended bankruptcy petition (“Petition”) dated 12 June 2020 presented by the Petitioner against Mr So Shing Cho Jacky (“the Debtor”). The Petition is based on the non-compliance with a statutory demand dated 15 January 2020 (“statutory demand”) for the sum of around HK$6.19 million. After certain partial set-off by the Petitioner, the petitioning debt is reduced to around HK$6.13 million (“Debt”). According to the Petition, on 28 February 2020, the statutory demand was served on the Debtor by advertisement in the Apply Daily. In the Debtor’s 1 affirmation (“So 1”) at paragraph 11, he also admits having received a copy of the statutory demand by post from the Petitioner’s solicitors on or around 4 February 2020. 2.As set out in the Petition, the Debt consists of:
Background 3.The Petitioner is an insurance company carrying on business in Hong Kong. The Debtor joined the Petitioner in February 2014 as its agent and entered into an Agent’s Agreement dated 4 February 2014 and a Manager’s Agreement dated 24 February 2014. His appointment was terminated on 25 December 2019. Throughout the period, the Debtor was appointed as a regional director of the Petitioner. 4.Both Li and Sin were the Petitioner’s agents, each of them having signed an Agent’s Agreement on 3 January 2017 (“Agent’s Agreements”) whereby they agreed to solicit, sell and service applications for financial products offered by the Petitioner. On 3 July 2017, each of them entered into an Agency Builder Program Agreement with the Petitioner (“ABP Agreements”). 5.Under the ABP Agreements at Clause 2.1, the Petitioner may in its sole and absolute discretion advance to Li and Sin Signing Bonus, Monthly Income Allowance and/or other performance bonuses. These advancements were subject to the Clawback Rules in Clause 3 and the corresponding conditions set out in the Schedules and Annexes. For instance, the Petitioner could claw back 100% of the bonuses if the Agent’s Agreements were terminated within 48 months. Generally, all bonuses and allowances advanced by the Petitioner to an agent were not earnings and would not become vested in the agent until the relevant conditions were fulfilled. 6.Li was a direct downline agent of the Debtor and Sin in turn was a direct downline agent of Li. As such, in so far as all such advancements made in favour of Li and Sin were concerned, the Debtor and his upline manager Mr Lim Chun Wah Tommy (“Lim”) had jointly executed the Deeds in favour of the Petitioner to inter alia provide joint and several personal guarantees for the repayment of all amounts respectively due and owing by Li and Sin under the ABP Agreements. 7.Clause 2 of the Deeds provides:
8.Under Clause 3.1 of the Deeds, “Guaranteed Indebtedness” is defined as “all amounts due or payable to the Company from or by the Agent under the ABP Agreement (including but not limited to any clawbacks and repayments under the ABP Agreement).” 9.It is the Petitioner’s case that by a written notice served on Li on 8 November 2018, the Agent’s Agreement and the ABP Agreement with Li were terminated with effect on 7 December 2018. On 20 December 2018, the Petitioner issued a demand letter to Li for payment of HK$2,018,765.69, being the sum then due and owing under her ABP Agreement. Similarly, by a written notice served on Sin on 27 September 2019, the Agent’s Agreement and the ABP Agreement with Sin were terminated with effect on 27 October 2019. On 25 October 2019, the Petitioner issued a demand letter to Sin for payment of HK$4,177,287.42, being the sum then due and owing under her ABP Agreement. The sums demanded from Li and Sin represented Signing Bonus and Monthly Income Allowance advanced to them. The Petitioner had not received any objection from Li or Sin about the quantification of the sums after the demand letters were sent to them. Nor had the Petitioner received any payments from them. Deliberation 10.According to Mr Leung’s skeleton submissions, the Debtor opposes the Petition on the following grounds:
Ground 1 - Irregular service of the statutory demand 11.At paragraph 19 of So 1, the Debtor asserted that:
12.No further explanation was given in So 1. 13.Mr Leung’s submissions on this Ground[1] are just as incomprehensible. 14.Mr Leung does not dispute Mr Ray Ng[2]’s evidence that he attempted to serve the statutory demand on the Debtor personally at his 2 last known addresses on 2 different occasions, but in vain. The Petitioner’s solicitors then sent letters to the Debtor with a view to making an appointment for serving the statutory demand on the Debtor but were unable to make any appointment with him. The Petitioner then caused the statutory demand to be advertised in the Apple Daily on 28 February 2020. 15.There is no explanation in Mr Leung’s skeleton as to why service of the statutory demand by advertisement in the Apple Daily was irregular. In particular, Mr Leung has failed to point out what more reasonable steps ought to have been taken by the Petitioner to effect service on the Debtor but which were not taken. 16.Rule 46(1) and (2) of BR provide:
17.In Re Pang Mei Lan May [2005] 1 HKC 319 at [25] to [28], Barma J (as he then was) said:
18.What actually happened, according to Ray Ng’s first affirmation of service (“Ray 1”), was this. 19.There were 2 addresses of the Debtor last known to the Petitioner viz (i) Flat A, 4/F, Crystal Court, 6 Man Wan Road, Homantin, Kowloon, Hong Kong (“1st Address”) and (ii) Zurich Insurance Company Limited (“Zurich”), 25-26/F, One Island East, 18 Westlands Road, Island East, Hong Kong (“2nd Address”). 20.2 attempts were made by Ray Ng to personally serve the statutory demand at the 1st Address. 21.The 1st attempt was made on 29 January 2020 when Ray Ng made a personal visit. After being stopped by a security guard from going upstairs to the unit, he used the intercom at the entrance of the building. A female answered and informed him that she did not know the whereabouts or any contact information of the Debtor. Failing the first attempt, on 4 February 2020, the Petitioner’s solicitors issued an appointment letter (“1st appointment letter”) to inform the Debtor about the failed attempt and give him notice that Ray Ng would call again on 18 February 2020 at 7:35pm (or any time and place convenient to him) to effect service of the statutory demand, a copy of which was also enclosed with the letter. No response was received from the Debtor. 22.The 2nd attempt was made by Ray Ng on 18 February 2020. Similar to the 1st attempt, Ray Ng was not allowed to go upstairs to the unit. Nor could he obtain any information using the intercom at the entrance of the building - a female answered and informed Ray Ng that she did not know the whereabouts or any contact information of the Debtor. 23.For the 2nd Address, 2 attempts were also made by Ray Ng to personally serve the statutory demand. 24.The 1st attempt was made on 29 January 2020 when Ray Ng attended the address and found that Zurich’s office was closed due to COVID-19 and the customer service counters were suspended until further notice. Similarly, on 4 February 2020, the Petitioner’s solicitors issued an appointment letter (“2nd appointment letter”) to inform the Debtor about the failed attempt to personally serve him and give him notice that Ray Ng would call again on 18 February 2020 at 4:30pm (or any time and place convenient to him) to effect service of the statutory demand, a copy of which was also enclosed with the letter. However, the letter was returned undelivered on 20 February 2020. 25.The 2nd attempt was made by Ray Ng on 18 February 2020 at 4:30pm at the 2nd address. The attempt similarly failed as Zurich’s office was still closed. 26.In these circumstances, this court accepts that the Petitioner has taken all reasonable and practicable steps to personally serve the statutory demand on the Debtor and to bring the statutory demand to his attention. As admitted in So 1, he did receive the statutory demand by post on or about 4 February 2020 so the statutory demand has actually been brought to his attention. In my view, objectively speaking and in light of the information available to the Petitioner, what it has done in the circumstances falls within the range of reasonableness for the purpose of Rule 46(2) of BR: re Ho Kai Wa Francis (a debtor) [2015] 1 HKLRD 277 at [7] to [8]. 27.Ground 1 is unmeritorious and must be rejected. Ground 2 - defective statutory demand 28.Rule 44(3) of BR provides that a statutory demand must state the amount of the debt, and the consideration for it (or, if there is no consideration, the way in which it arises). 29.In Re Leung Cherng Jiunn (debtor) [2016] 1 HKLRD 850 at [13], Kwan JA (as she then was) observed:
30.In the present case, the statutory demand has set out (i) the amount of the Debt, (ii) the way in which the Debt arises ie pursuant to the Deeds for sums owed by Li and Sin to the Petitioner and (iii) a breakdown of the amount of the Debt into HK$2,017,440.10 in relation to Li and HK$4,176,969.24 in relation to Sin and minus a sum of HK$130 as withheld commissions. It seems clear to this court that the requirements under Rule 44(3) of BR have been met. 31.Mr Leung submits at paragraph 55 of his skeleton that in Re Leung Cherng Jiunn (debtor) at [16], it was held that “a debt allegedly founded on a guarantee without reference to the guarantee was insufficient for the purpose of Rule 44(3) of BR”. That is unexceptional if he means a statutory demand is defective if it fails to refer to the guarantee when the debt is founded on a guarantee. 32.But Mr Leung then submits at paragraph 56 of his skeleton that “similarly, a debt allegedly founded on some primary debts without particulars of such debts would be insufficient for the purpose of Rule 44(3) of BR.” It is not entirely clear what particulars of the primary debts he suggests should be stated in a statutory demand for a debt arising under a guarantee. Further, no authority in support of his said submission is cited in his skeleton. In so far as Mr Leung relies on Re Leung Cherng Jiunn (debtor) at [16] by analogy, the submission is misconceived. 33.In that case, the Court of Appeal held that the petitioner could not rely on a sign-on fee to the debtor’s downline agent as a debt to support a petition because the statutory demand failed to specify the correct basis of the debtor’s liability for it ie pursuant to a guarantee signed by the debtor. This was made clear at [16] of the Judgment. There was however no suggestion in that case that when a debtor’s liability arose under a guarantee, a statutory demand must also give particulars of the underlying debts covered by the guarantee or what particulars would be considered sufficient. 34.In the present case, the statutory demand has clearly stated that the Debtor’s liability arose under the Deeds for sums owed by Li and Sin to the Petitioner with a breakdown of how much was owed by each of them. Since a creditor is not required to “completely” set out the bases of the debt in a statutory demand, the fact that the statutory demand did not give a further breakdown of the amounts due from each of Li and Sin eg how much was due as Signing Bonus and how much was due as Monthly Income Allowance is neither here nor there. 35.For these reasons, this court is of the view that the statutory demand was not defective as submitted by Mr Leung. 36.In any event, the Debtor had signed the Deeds in respect of his downline agents’ liability and he would know full well Guaranteed Indebtedness means “all amounts due or payable to the [Petitioner] from or by the Agent under the ABP Agreement (including but not limited to any clawbacks and repayments under the ABP Agreement).” In the Petitioner’s demand letters to Li and Sin dated 20 December 2018 and 25 October 2019, it has actually given a breakdown of the amounts due from them under the ABP Agreements in respect of Signing Bonus and Monthly Income Allowance respectively. The demand letters were on their face copied to the Debtor[3]. After the Debtor had received a copy of the statutory demand on or around 4 February 2020, there is no evidence that he requested for further clarification of the nature of the Debt or for particulars of the underlying debts from the Petitioner. Indeed, when the Debtor referred to the statutory demand at paragraph 11 of So 1, he did not complain that he had no idea what the Debt or the underlying debts consisted of - instead, he said he found it unnecessary to respond. Clearly, the Debtor knew what course he should take in light of the information given in the statutory demand - he just ignored the demand. 37.Today, the Courts adopt a flexible approach and will not readily set aside a statutory demand on the ground that there is a defect in its contents if there is no evidence of prejudice to the debtor or an indication that the debtor would have complied with a non-defective demand: Re a Debtor (No 1 of 1987) [1989] 1 WLR 271; Zhang Liyuan v Luu Hung Viet Derrick unrep, HCB 4776 of 2011, 8 February 2012, Barma J (as he then was) at [34] - [35]. In the present case, even if the statutory demand is somehow inadequate, which this court has ruled it is not, it cannot be said that the inadequacy has caused any prejudice to the Debtor such as to prevent the Petitioner from presenting the Petition on the basis of it. 38.Ground 2 is unmeritorious and must be rejected. Ground 3 - the Debt did not arise 39.It is a well-established legal principle that in order to successfully oppose a Petition, a debtor has to show a bona fide dispute to the debt on substantial grounds: Re Tam Mei Kam unrep, HCB 3777 of 2011, 25 April 2012, Barma J (as he then was); Re Xu Xiuzhi unrep, HCB 8815 of 2014, 2 September 2015, Ng J. 40.At paragraph 15 of So 1, the Debtor made a bare assertion that the requirements under Clause 2 of the Deeds have not been complied with and he is thus not indebted to the Petitioner. No further explanation was given by him. Since a total of 4 demands letters[4] have been sent to the Debtor between 29 November 2019 and 15 January 2020, the receipt of which the Debtor does not dispute[5], he should have been able to point out in what way the demand letters have failed to comply with Clause 2. But he has not. 41.Mr Leung’s submissions on this Ground are no better. 42.At paragraph 62 of Mr Leung’s skeleton, he submits:
43.Since his client has admittedly received the 4 demand letters from the Petitioner, Mr Leung’s submission that the Debtor has never received a demand for payment is incomprehensible. In so far as Mr Leung is submitting that his client has never received a demand which complies with Clause 2 of the Deeds, his submission suffers the same problem as paragraph 15 of So 1 in that it is just a bare assertion without giving any explanation of the alleged non-compliance. 44.Then, at paragraph 65 of Mr Leung’s skeleton, he submits:
45.That paragraph again fails to give details of the alleged non-compliance with the Deeds. 46.It is true that Clause 2 of the Deeds requires that the demand for payment shall inter alia briefly specify in reasonable detail the Guaranteed Indebtedness (or part of) that the Agent has failed to pay and contain a brief explanation of why such payment is due from the Agent. But what constitutes reasonable detail of the Guaranteed Indebtedness or a brief explanation of why such payment is due must depend on the circumstances of the case in light of the Debtor’s knowledge at the time he received the demand. In the view of this court, the rationale behind Clause 2 must be to inform the Debtor of the nature of his liability for his downline agents’ ie Li and Sin’s indebtedness and how much of the Guaranteed Indebtedness was demanded of him. As long as the Debtor fully understood these from the demand letters, then the requirements of Clause 2 would have been satisfied. 47.First, as this court points out earlier, in the Petitioner’s demand letters to Li and Sin dated 20 December 2018 and 25 October 2019, it has already given a breakdown of the amounts due from them under the ABP Agreements in respect of Signing Bonus and Monthly Income Allowance respectively upon the termination of their agency. The demand letters were copied to the Debtor. From these letters alone, the Debtor would have already known why payment was due from Li and Sin to the Petitioner. 48.Second, after Li and then Sin had been terminated as agents, the Petitioner had sent various e-mails to the Debtor and Lim from 21 June 2019 onwards (“the Emails”) notifying them of their “Manager’s liability for Terminated Agent” with details of the amounts to be deducted from their payroll. On the evidence, the Debtor’s only liability as manager for his downline agents is for the Guaranteed Indebtedness under the Deeds which he signed as “manager”. The Emails even contained discussions between the Petitioner, the Debtor and Lim regarding their proposed repayment plans for such indebtedness, albeit no agreement could be reached. 49.Third, when the Debtor referred to the 4 demand letters he received from the Petitioner at paragraphs 8 and 9 of So 1, he did not allege that the letters were so lacking in details as required by Clause 2 that he did not understand what was demanded of him and why. Instead, he instructed his solicitors to write back to the Petitioner on 4 February 2020 denying liability to pay, not because of non-compliance with Clause 2, but on the ground that the Petitioner was in breach of the implied terms of the agreements between the Petitioner and Li and Sin. In that letter, the Debtor’s solicitors even admitted that Li and Sin were unable to meet their sales requirement prior to the termination of their agency, although they blamed it on the Petitioner for not approving Li and Sin’s application to recruit more downline agents. 50.Fourth, in the 3rd affirmation of Lam Tuen Yan (“Lam 3”) for the Petitioner, Mr Lam affirmed that after Li and Sin had been terminated as agents, the Petitioner had made numerous oral and written demands[6] to the Debtor and Lim for repayment under the Deeds and strongly denied that the Debtor or Lim did not know the nature of the amounts due to the Petitioner under the Deeds. In the Debtor’s 2nd affirmation (“So 2”) in reply, he did not challenge what Mr Lam said in Lam 3. His only response was that he had no recollection of (i) whether he had received the Petitioner’s demand letters to Li and Sin copied to him or (ii) the Emails. 51.In these circumstances, it is reasonably clear to this court that the Debtor would have been left in no doubt as to what the Petitioner meant in the 4 demand letters in light of the Debtor’s knowledge at the time. In this court’s view, the demand letters have given sufficient details of the Guaranteed Indebtedness and a brief explanation of why payment was due from Li and Sin as required by Clauses 2.1 and 2.2. On the face of them, they have also clearly complied with the other requirements under Clause 2. 52.For these reasons, Ground 3 is unmeritorious and must be rejected. Ground 4 - Petitioner’s breach of the ABP Agreements 53.In So 1 at paragraphs 24 and 27, the Debtor explains the basis of this Ground as follows:
54.At paragraph 69 of his skeleton, Mr Leung submits that it is an implied term of the ABP Agreements that the Petitioner shall not prevent Li and Sin from building up their team through recruiting competent agents. The refusal to appoint Ms Yau is unreasonable and amounted to a repudiation of the Agents’ Agreements and the ABP Agreements entered into with Li and Sin. The Debtor was thereby discharged from the guarantee contained in the Deeds. 55.At paragraph 71 of his skeleton, Mr Leung submits that it should also be an implied term that “Li and Sin should be allowed to perform the ABP Agreement, i.e. work with P as manager/agent for no less than 48 months so that P’s right to clawback will lapse.” Presumably, what Mr Leung intends to mean is that there is an implied term in the ABP Agreements that the Petitioner should allow Li and Sin to continue to work for a sufficient period of time so that it could not exercise its right under the Clawback Rules in the ABP Agreements to claw back the advances made to them. 56.In this court’s view, the submissions are so far-fetched that they only have to be stated to be rejected. The 1st implied term means the Petitioner was under a duty to keep recruiting agents to serve under Li and Sin as long as they regarded the candidate as completely satisfactory, experienced and suitable. The 2nd implied term means the Petitioner must keep employing Li and Sin as agents until it loses its right under the Clawback Rules, without regard to any other factors eg how satisfactory or otherwise their performance was. 57.It is trite law that for a term to be implied into a contract, 5 conditions must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract: Kensland Realty Ltd v Whale View Investment Ltd & Anor (2001) 4 HKCFAR 381 at [59]. 58.The short answer to Mr Leung’s submissions is that he has failed to demonstrate how each of the alleged implied terms can satisfy the above requirements. 59.As for the 1st implied term, this court cannot see why it is necessary to give business efficacy to the ABP Agreements or that it must be so obvious that it goes without saying. Recruitment is obviously a business decision on the part of the Petitioner, and obviously not a matter for the agents like Li and Sin to decide. The 1st implied term is certainly not so obvious that “it goes without saying” - in fact, the opposite is true. 60.The 2nd implied term suffers from the same problem as the 1st implied term - it is difficult to see why it is necessary to give business efficacy to the ABP Agreements or that it must be so obvious that it goes without saying. Further, the 2nd implied term actually contradicts the Clawback Rules in Clause 3 of the ABP Agreements which gives the Petitioner a right to claw back advances made to Li and Sin if certain conditions are met. In essence, the 2nd implied term means the Petitioner has no such right even if those conditions are met. 61.Ground 4 is utterly hopeless and must be rejected. Disposition and costs order nisi 62.As all the grounds of opposition are unmeritorious, this court is satisfied that the Petitioner is entitled to a bankruptcy order against the Debtor. 63.There will be a usual bankruptcy order against Mr So Shing Cho Jacky and an order nisi that the costs of the Petition, including all costs reserved, if any, be to the Petitioner.
Mr Kelvin Leung, instructed by How & Co, for the Debtor Mr Jason Wong, instructed by Hampton, Winter & Glynn, for the Petitioner Attendance of the Official Receiver was excused [1] At paragraphs 48 to 52 of his skeleton. [2] A legal clerk of the Petitioner’s solicitors. [3] In the Debtor’s 2nd affirmation at para 7, he simply said he did not have recollection whether he had received these letters. [4] The 4 demand letters were substantially the same save for some minor downward revisions to the figures. [5] The Debtor actually exhibited them in So 1. [6] Ie the Emails. |