Dckd and Another v. Jpwl

HCSD 33/2021

[2022] HKCFI 1059

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND

NO 33 OF 2021

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BETWEEN

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Before: Hon Linda Chan J in Chambers (not open to public) (remote hearing)

Date of Hearing: 29 March 2022

Date of Decision: 12 April 2022

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D E C I S I O N

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1.By an application dated 2 August 2021 (“Application”) the 1^st Applicant (“A1”) and the 2^nd Applicant (“A2”) (together “Applicants”) seek to set aside 2 statutory demands both dated 14 July 2021 and served by the Respondent (“R”) on A1 (“1^st SD”) and A2 (“2^nd SD”) respectively.

2.As is clear from rule 47 of the Bankruptcy Rules (Cap. 6A) (“Rules”) and Form 155 of the Bankruptcy (Forms) Rules (Cap. 6B), each applicant should make a separate application in respect of the statutory demand which concerns him and set out the grounds he relies on in an affidavit accompanies the application. This has not been done by the Applicants. When this Court raises the irregularity with Mr Joshua S Kanjanapas Wong, counsel for the Applicants, he explains that a single application is made because A1 contends that the debt under the 2^nd SD is owed by him instead of A2. This is not a valid reason for failing to make the application in compliance with the proper procedure. If there are common questions of fact or law arising from related applications, the Applicants may ask the Court to list and deal with the applications at the same time. In future, an applicant who fails to follow the proper procedure may run the risk of his application being dismissed by the Court summarily.

3.The 1^st SD concerns 5 debts which were described as follows:

(1) RMB13,113,170 incurred on 16 April 2020 “paid by [R] and received by [A1] for lack of consideration; hence, bound [sic] for repayment” (“1^st Debt”).

(2) RMB8.8 million incurred on 29 May 2021 “for repayment of investment capital together with the agreed profit pursuant to an investment agreement dated 29 May 2020” between [A1] and [R]” (“1^st Investment Agreement” and “2^nd Debt” respectively) ;

(3) HK$3,121,560 incurred on 3 February 2021 “for repayment of investment capital pursuant to an investment agreement dated 2 September 2020” (“2^nd Investment Agreement” and “3^rd Debt” respectively);

(4) RMB1 million incurred on 24 February 2021 “paid by [R] and received by [A1] for lack of consideration; hence, bound [sic] for repayment” (“4^th Debt”); and

(5) RMB7.6 million incurred on 22 January 2021 “for repayment of investment capital together with agreed profit pursuant to an investment agreement made between CP (for and on behalf of [R]) and [A1] dated 21 October 2020” (“3^rd Investment Agreement” and “5^th Debt” respectively).

4.The 2^nd SD concerns a debt of HK$1.5 million advanced pursuant to a loan agreement made orally between A2 and R on 6 January 2021 and subsequently confirmed in writing with interest at 6% per annum from that date (“Loan Agreement”).

5.In his written submissions, Mr Alan Kwong, counsel for R, confirms that R no longer seeks to rely on the 1^st Debt. It is not clear why having come to such view, R does not withdraw the 1^st SD and serve a fresh statutory demand on A1 in respect of what she believes to be the debts which are indisputable. It is a waste of time and costs for R to continue to resist the Application insofar as it concerns the 1^st SD as she will not be able to rely on A1’s failure to comply with the 1^st SD as the basis for contending that he is unable to pay his debts by virtue of s.6A(1)(a) of the Bankruptcy Ordinance (Cap. 6).

6.At the hearing, Mr Wong concedes that A1 does not have any bona fide dispute on substantial ground in respect of the 4^th Debt. Accordingly, the issues which divide the parties are whether there is a bona fide dispute on substantial grounds in respect of the 2^nd, 3^rd and 5^th Debts in respect of the 1^st SD and the debt in respect of the 2^nd SD.

Factual background

7.A2 is the wife of A1. CP is R’s brother. KN is R’s husband.

8.The 1^st Investment Agreement contained the following terms:

(1) R agreed to deposit RMB8 million as investment capital to an account designated by A1, and A1 agreed to assist R to “formulate strategies, implement and make necessary adjustments to the investment plan in the course of operation” (Article I).

(2) The investment term was for one year. A1 guaranteed to R that “there shall be no loss of investment capital and 10% profit during the investment term”. The investment capital would be paid on 29 May 2021 (Article II).

9.It is R’s case that the 2^nd Debt (RMB8.8 million) represents investment capital of RMB8 million and the guaranteed profit of 10% thereof.

10.The 2^nd Investment Agreement contained the following material terms:

(1) Article I was identical to that of the 1^st Investment Agreement save that the investment capital was HK$2,340,000.

(2) The investment term was for 5 months, and A1 guaranteed to R that that there shall be no loss of investment capital. A1 was “entitled for the profit sharing (20% of the profit gained in the investment)”. The “investment Capital and Profit” would be paid on 3 February 2021 (Article II).

11.It is R’s case that the 3^rd Debt (HK$3,121,560) represents investment capital of HK$2,340,000 and the guaranteed profit of HK$781,560 thereof.

12.The 3^rd Investment Agreement made between CP and A1 contained the following material terms:

(1) Article I was identical to that of the 1^st Investment Agreement save that the investment capital was RMB5 million.

(2) The investment term was for 3 months. A1 guaranteed to CP that “there shall be no loss of investment capital and with 50% of the Investment capital (“investment profit”).” A1 was “entitled for the profit sharing (10% of the profit gained in the investment)”. The “investment Capital and Profit” would be paid on 22 January 2021.

13.It is R’s case that CP entered into the 3^rd Investment Agreement as R’s agent. This is confirmed by CP in his affirmation. The 5^th Debt (RMB7.6 million) represents the investment capital of RMB5 million and the guaranteed profit thereof although it is not clear how R came up with the profit of RMB2.6 million.

14.Article V of each of the 1^st, 2^nd and 3^rd Investment Agreement (collectively “Investment Agreements”) contained an arbitration clause (“Arbitration Clause”) as follows:

“Any dispute between the Parties arising from the performance of this Agreement shall be resolved through friendly consultations. If the dispute remains unsettled, it shall be heard at the Hong Kong International Arbitration Centre using applicable laws of Hong Kong by an arbitrator elected by the Parties.”

15.As for the debt under the 2^nd SD, the sum of HK$1.5 million was transferred by R to A2’s bank account at HSBC on 6 January 2021. The Loan Agreement (which was undated and in Chinese) was entered into by A2 as borrower, R as lender and A1 as guarantor. It provided that A2 borrowed HK$1.5 million from R for personal urgent reasons (“私人應急理由”). A2 agreed to repay the principal together with interest at 6% p.a. by 6 March 2021. It is not in dispute that the Loan Agreement was prepared by KN and shown to A1 at the meeting between A1, KN and R on 5 July 2021 at Dynasty Club. After the meeting, KN took the Loan Agreement to A1/A2’s home for signature by A2.

(1) On R’s case, the transfer was made to top up her investment on the same terms as the 2^nd Investment Agreement, and it was pursuant to A1’s direction that she transferred the sum to A2’s account.

(2) On the other hand, A1 says that this was a loan advanced by R to him, which was interest free and repayable on demand. The sum was transferred to A2’s bank account as his bank account at HSBC had just been closed.

16.On or about 15 June 2021, A1 issued a number of cheques to R and CP, all of which were dishonoured (collectively “Cheques”):

(1) A cheque for HK$1.5 million dated 18 June 2021 and another cheque for HK$1,621,560 dated 30 June 2021 both in favour of R. R says that the total sum of HK$3,121,560 represents repayment of capital and interest/profit under the 2^nd Investment Agreement.

(2) A cheque for HK$2 million dated 20 June 2021, a cheque for HK$2 million dated 30 June 2021 and another cheque for HK$5,220,996.40 dated 15 July 2021, all in favour of CP. R says that the total sum of HK$9,220,996.4 represents repayment of capital and profit under the 3^rd Investment Agreement and is equivalent to RMB7.6 million.

17.By a deed of confirmatory assignment dated 10 November 2021 (“Assignment”) CP assigned the amounts owed by A1 under the 3^rd Investment Agreement to R (without prejudice to his position that CP entered into the 3^rd Investment Agreement as R’s agent).

18.In their letter dated 25 November 2021 to Messrs. Jones Day, Messrs. Henry Yu & Associates (“HYA”) on behalf of the Applicants, referred to R’s affirmations and the factual disputes between the parties and requested R to refer the disputes in relation to the Investment Agreements to arbitration pursuant to the Arbitration Clause. In the same letter, HYA proposed the parties to submit their dispute to the Hong Kong International Arbitration Centre (“HKIAC”) and proposed a person as sole arbitrator. This was followed by a Notice of Arbitration (“Notice of Arbitration”) dated 1 December 2021 issued by HYA to R.

19.It is not in dispute that the Applicants have not paid or compounded for any of the debts demanded under the 1^st and 2^nd SDs.

Applicable principles

20.A statutory demand is an important document. It serves to inform the debtor of the way in which the debt arose so that he would know what course he should take in the light of the information given. It is “the straight and narrow gateway” through which a creditor must pass in order to establish the debtor’s apparent inability to pay the debt demanded in order for a bankruptcy petition to be presented (TSB Bank plc v Platts (No 2) [1998] BPIR 284 at 288H, applied in Re Leung Cherng Jiunn [2016] 1 HKLRD 850, at §13). Whilst the statutory code affords the court a desirable degree of flexibility in dealing with an application to set aside a statutory demand for defects, this is not to be taken as a charter for slipshod preparation of statutory demands. If a statutory demand is defective, the Court will be alert to see whether those mistakes have caused or will cause any prejudice to the debtor (Re Leung Cherng Jiunn, §§15-16, citing In re A Debtor (No 1 of 1987) [1989] 1 WLR 271 at 280D-E, per Nicholls LJ).

21.The Application is made under rules 47 and 48 of the Rules. Rule 48(5) provides that the Court may grant the application if:

“(a) the debtor appears to have a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt or debts specified in the statutory demand;

(b) the debt is disputed on grounds which appear to the court to be substantial;

(c) it appears that the creditor holds some security in respect of the debt claimed by the demand, and either rule 44(5) is not complied with in respect of it, or the court is satisfied that the value of the security equals or exceeds the full amount of the debt; or

(d) the court is satisfied, on other grounds, that the demand ought to be set aside.”

22.The burden is on the Applicants to satisfy the Court that there are valid grounds to set aside the 1^st and 2^nd SDs.

23.When considering an application to set aside, the Court is only undertaking a limited exercise and will only be concerned with whether the creditor is able to pursue bankruptcy proceedings founded on the statutory demand (Budge v AF Budge (Contractors) Ltd [1997] BPIR 366, 372A-D, per Peter Gibson LJ). As Kwan J (as she then was) explained in Re Choy Wai Bor, HCB 8565/2001, 28 May 2002, §22:

“[T]he mechanism to set aside a statutory demand is intended to be a filtering process to protect the debtor against a petition being presented based on a statutory demand that is demonstrably unjustified.”

24.For the purpose of demonstrating that the debt is disputed on substantial grounds within rule 48(5)(b), the Applicants must establish by sufficiently precise factual evidence which is believable that they have a defence of substance, not just a fair probability of one (Chan Ping Lam Waymond v Noble Art Ltd, CACV 270/2012, 30 September 2013, §8, per Fok JA (as he then was)). The Court will consider the case being put forward with a reasonably critical eye, testing the case against the other background facts and circumstances (Lai Kar Yee v The Prudential Assurance Company Limited, CACV 233/2014, 9 June 2017, §12, per Barma JA).

25.Where a debtor relies “on other grounds” within rule 48(5)(d), the question for the Court remains the same - whether the creditor is entitled to rely on the non-compliance with the statutory demand to found a petition. This was stated by Nicholls LJ in In re A Debtor (No 1 of 1987) [1989] 1 WLR 271 at 276B-E:

“… Under the Act, a statutory demand which is not complied with founds the consequence that the debtor is regarded as being unable to pay the debt in question or, if the debt is not immediately payable, as having no reasonable prospect of being able to pay the debt when it becomes due. That consequence, in turn, founds the ability of the creditor to present a bankruptcy petition because, under section 268(1)^[1], in the absence of an unsatisfied return to execution or other process, a debtor’s inability to pay the debt in question is established if, but only if, the appropriate statutory demand has been served and not complied with.

When therefore the rules provide, as does rule 6.5(4)(d)^[2], for the court to have a residual discretion to set aside the statutory demand, the circumstances which normally will be required before a court can be satisfied that the demand ‘ought’ to be set aside, are circumstances which would make it unjust for the statutory demand to give rise to those consequences in the particular case. The court’s intervention is called for to prevent that injustice.” (underlined added)

26.It is not necessary that evidence as to prejudice is filed or that the possibility of prejudice has been raised by a debtor. The question remains whether it would be just to allow the statutory demand to be relied on for a bankruptcy petition to be brought (Re Leung Cherng Jiunn, §16).

Discussion

27.The 1^st SD had been served on A1 on 15 July 2021, 19 days before the Application was filed. Mr Wong accepts that the Application was made out of time and applies for an extension of one day for the Applicants to make the Application. Mr Kwong does not take issue with the Application.

28.Mr Kwong submits that despite R’s acceptance that she cannot rely on the 1^st Debt, she can still rely on the 2^nd to 5^th Debts to present a bankruptcy petition. He invites the Court to dismiss the Application upon R’s undertaking that she will not rely on the 1^st Debt when she presents a bankruptcy petition against A1.

29.In my view, this is not the correct approach. Under the 1^st SD, R demanded A1 to pay 5 debts. The purpose of serving the 1^st SD is to give time for A1 to consider the demand and decides whether or not to pay or compound for the debts described therein. Upon A1’s failure to comply with the 1^st SD, R is entitled to rely on such failure as the basis for establishing inability to pay debt when she presents a bankruptcy petition against A1. The procedure does not allow a creditor to issue a statutory demand for a number of discrete debts and continues to rely on the debtor’s failure to comply with such demand when he knows that one or more of the debts cannot properly form the subject matter of a statutory demand. The proper course would be for the creditor to withdraw the demand and issue a fresh one so that the debtor can decide whether to comply with the new demand or to face the risk of a bankruptcy petition being presented against him if he does not do so. It is only when a debtor neither complied with the demand nor raised any bona fide dispute on substantial grounds in respect of the debts stated therein and a petition has been presented in reliance on his failure to comply with the demand that a creditor would seek leave to amend the petition (instead of amending the demand) to make clear that he is no longer relying on such part of the debts which is in dispute.

30.The same conclusion can be arrived on the basis of the provisions governing application to set aside statutory demand.

(1) If one or more of the grounds under rule 48(5) of the Rules is met, the Court may set aside the statutory demand. There is no provision which allows the Court to set aside part of the statutory demand^[3].

(2) On the other hand, rule 48(7) provides that if an application is dismissed, the Court “shall make an order authorizing the creditor to present a bankruptcy petition either forthwith, or on or after a date specified in the order”. It would be unjust to allow R to rely on A1’s failure to comply with the 1^st SD when it is no longer in dispute that the most substantial debt is not one which can form the subject matter of a statutory demand.

31.For the above reasons, the 1^st SD is defective and must be set aside. Nevertheless, as the parties have adduced evidence and substantive arguments on the 2^nd, 3^rd and 5^th Debts, I will set out my view as to whether or not there is a bona fide dispute on substantial grounds in respect of such Debts.

32.Mr Wong submits that the 2^nd, 3^rd and 5^th Debts cannot properly form the subject matter of a statutory demand on the following grounds:

(1) The 1^st to 3^rd Investment Agreements contain the Arbitration Clause and A1 has taken steps to commence arbitration. R should not be allowed to subvert the arbitration agreement by relying on the 2^nd, 3^rd and 5^th Debts.

(2) There was an oral agreement between A1, R and CP to extend the time for payment under the 1^st to 3^rd Investment Agreements (“Oral Extension Agreement”).

(3) The 3^rd Investment Agreement was entered into by CP rather than R, hence CP is the proper creditor for the 5^th Debt.

33.Mr Wong (rightly) abandons the last point in view of the Assignment executed by CP in favour of R.

34.The first and second points can be dealt with together. Mr Wong contends that R should be required to refer the dispute in relation to the 2^nd, 3^rd and 5^th Debts to HKIAC, which is the agreed forum for resolution of dispute arising from the 1^st to 3^rd Investment Agreements. His arguments may be summarised as follows:

(1) In Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449 (“Lasmos”) at §31, Harris J held that a winding up petition should generally be dismissed, save in exceptional circumstances, where: (a) a company disputes the debt, (b) the dispute is covered by an arbitration clause; and (c) the company takes the steps required under the arbitration clause to commence the arbitration process.

(2) As observed by Kwan VP in But Ka Chon v Interactive Brokers LLC [2019] 4 HKLRD 85 at §§70-71, the Court should give considerable weight to the factor of arbitration in the exercise of the discretion to dismiss or stay a winding up or bankruptcy petition.

(3) In the present case, the Lasmos requirements have been satisfied in that (a) A1 disputes the 2^nd, 3^rd and 5^th Debts which arose out of the 1^st to 3^rd Investment Agreements by reason of the Oral Extension Agreement; (b) the Arbitration Clause covers dispute arising from the performance of the Investment Agreements; and (c) A1 has taken steps to commence arbitration by inviting R to agree on arbitration through HYA’s letter dated 25 November 2021, issuing Notice of Arbitration, and paying $8000 registration fee to HKIAC for initiating the arbitration and responding to its initial questions.

(4) R should not be allowed to present a bankruptcy petition against A1 on the basis of the 2^nd, 3^rd and 5^th Debts.

35.The principles discussed in Lasmos and the subsequent authorities have been considered by this Court in the context of an exclusion jurisdiction clause in Re Guy Kwok-Hung Lam [2021] HKCFI 2135, §§35-49 and more recently in Re Hongkong Bai Yuan International Business Co., Ltd [2022] HKCFI 960, §§27-28 in the context of an arbitration agreement. It would be sufficient to reproduce what I said in Re Hongkong Bai Yuan, §28:

“It seems to me that whether one describes the threshold as a prima facie standard (as adopted by the Singapore and English courts where the agreement giving rise to the petitioning debt contains an arbitration clause) or a bona fide dispute on substantial grounds (as adopted by our courts), it is incumbent upon the debtor to demonstrate that there is a genuine dispute on the debt which requires determination of a tribunal. It would be pointless to require the parties to resolve their dispute through the contractually agreed forum if no genuine dispute exists. For this purpose, the Court would review the evidence and arguments adduced by the parties to see whether there is a genuine dispute over the debt and, if so, it is ordinarily appropriate to dismiss the petition, rather than leaving it hanging over the head of the company. As observed by Kwan VP in But Ka Chon, §§57-71, prior to Lasmos, the Companies Court would in the exercise of discretion under the insolvency legislation give considerable weight to the fact that there is an arbitration agreement between the parties and other relevant circumstances. The discretion is not exercised only one way as discussed in Lasmos: the petition should ‘generally be dismissed’ save in ‘exceptional’ or ‘wholly exceptional circumstances’ once the company satisfies the 3 requirements (viz., (a) the debit is not admitted, (b) the dispute is covered by the arbitration clause, and (c) the company has taken step to commence arbitration)”.

36.In the present case, the only dispute which A1 contends should be referred to arbitration is whether the Oral Extension Agreement existed such that R was not entitled to demand repayment of the 2^nd, 3^rd and 5^th Debts.

37.It is A1’s case that CP and R agreed orally to extend the time for A1 to make payment under the 1^st to 3^rd Investment Agreements, in return for A1’s help in promoting and finding investors for their family business of operating international schools in the Mainland (“Business”). A1 would only be required to pay the 2^nd, 3^rd and 5^th Debts upon completion of the sale of the Business. The discussions between A1 and CP in relation to the Oral Extension Agreement took place “since early 2021” and those between A1 and R took place in late May 2021. Since then, A1 has carried on some work in promoting and identifying potential investors for the Business and the process is still ongoing. As the sale of the Business has not been completed, the time for payment continues to be extended and A1 is not required to pay the 2^nd, 3^rd and 5^th Debts. In support of his case, A1 produced some Zoom and WeChat records of discussions with potential investors showing that he has helped R and CP in this regard. A1 claims that the Cheques were provided to R and CP to show his sincerity and they were not intended to be cashed.

38.R denies the existence of the Oral Extension Agreement. Mr Kwong submits that the alleged Agreement is an “ex post facto invention” evidenced by (1) the fact that there was no mention of the Oral Extension Agreement in A1’s affirmation filed in support of the Application. Instead, the allegation only came about when he filed his 2^nd affirmation in reply to R’s affirmations; (2) the complete lack of contemporaneous documentary evidence; (3) the alleged Agreement is vague and open-ended and did not specify the length of extension or A1’s precise obligations; and (4) A1’s act in providing the Cheques to R and CP as payment of the sums due under the 2^nd and 3^rd Investment Agreements. The Oral Extension Agreement does not make commercial sense since A1 would not have to pay under the 1^st to 3^rd Investment Agreements so long as the Business is not sold, and A1 would not have incentive to facilitate the sale despite his obligation to do so.

39.As the evidence now stands, I do not think that A1 has discharged the burden of showing that there is a bona fide dispute that the Oral Extension Agreement existed.

(1) Not a single word was said about the Oral Extension Agreement when A1 filed his 1^st affirmation in support of the Application. Had the Agreement existed, A1 would have mentioned it as a ground in support of the Application as it would provide a complete answer to his liability to pay the 2^nd, 3^rd and 5^th Debts. There is no explanation as to why A1 did not raise the Oral Extension Agreement despite its professed importance.

(2) It is A1’s own case that R and CP had “previously” enlisted A1 as consultant in assisting them to find investors and buyers for the Business^[4] and the Oral Extension Agreement was reached in “early 2021” at the earliest. The only documents adduced by A1 are some WeChat conversations between 11 January 2021 and 19 January 2021 showing discussions with potential investors lined up by him. This shows that whatever effort undertaken in pursuance to the Oral Extension Agreement, it came to an end by mid-January 2021.

(3) The terms of the Oral Extension Agreement are extremely vague and not sufficiently certain to give rise to an enforceable agreement.

(4) More importantly, the fact that A1 provided the Cheques to R and CP militates against A1’s allegation that the Oral Extension Agreement existed. Had the Agreement existed, it would not have been necessary for A1 to provide the 3 cheques to CP on or around 15 June 2021.

(5) The Cheques are bills of exchange and are payable upon presentation. The only defence which may be advanced by A1 is total failure of consideration, which is not A1’s case.

40.I should add that the wordings of Article II of the 2^nd and 3^rd Investment Agreements suggest that it was A1 (instead of R) who would be entitled to profit sharing. The Applicants did not in their affirmations take issue with R’s case that under the 2^nd and 3^rd Investment Agreements, the profit sharing would be payable to R as opposed to A1. In view of the inconsistency between R’s case and the terms of the 2^nd and 3^rd Investment Agreements, this Court invites parties to make submissions on the discrepancy.

41.It is R’s case that the parties agreed, pursuant to the 2^nd Investment Agreement, that if HKD2,340,000 was invested by R, there would be a profit of not less than 20% per annum at the end of the 5-month term.^[5] However, unlike the 1^st and 3^rd Investment Agreements, the 2^nd Investment Agreement (as summarised at §10 above) provides no profit guarantee of any form. In fact, Article II of the 2^nd Investment Agreement provides that A1 is entitled to 20% of the profit gained in the investment.

42.Mr Kwong submits that there were mistakes in the 2^nd and 3^rd Investments in that the reference to A1 should be to R, and both parties understood that the profit should be paid to R instead of A1, evidenced by the following matters:

(1) The Applicants do not dispute R’s characterisation of the 2^nd and 3^rd Investment Agreements, whether in their affirmations or in Mr Wong’s skeleton.

(2) The 2 cheques issued to R represent capital investment and the 20% profit guaranteed to be paid to R.

(3) The Applicants are estopped by convention from denying R’s characterisation. The 2 cheques issued to R reflect their common understanding on the profit guarantee, which R had relied upon (to her detriment) by attempting to cash in the cheques and subsequently giving more time to A1 to pay by not insisting on the due date under the 2^nd Investment Agreement (3 February 2021) and waited until the 1^st SD was served on 15 July 2021.

(4) In any event, R is entitled to repayment of the capital in the amount of HK$2,340,000.

43.Mr Wong submits that while the Applicants have not objected to R’s characterisation of the 2^nd Investment Agreement, they have not conceded the amount claimed or admitted that there was a guaranteed profit. As regards the 2 cheques issued to R, Mr Wong submits that at the time the cheques were issued, the amounts due under the 1^st and 2^nd Investment Agreements remained outstanding, thus the amounts of the cheques were not necessarily confined to payment of the amount due under the 2^nd Investment Agreement.

44.The suggestion that the 2 cheques issued to R might be for payment of the sums due under the 1^st and 2^nd Investment Agreements is not based on any evidence. I am inclined to agree with Mr Kwong that the evidence supports R’s contention that it was the agreement of the parties that the profit mentioned in the 2^nd and 3^rd Investment Agreements are payable to R and the reference to A1 was a mistake. The timing and the amounts of the 2 cheques issued to R lend further support to R’s case.

45.I am unable to accept Mr Kwong’s contention that R is entitled to rely on estoppel by convention. I do not think that a common assumption^[6] as to R’s understanding of the 2^nd Investment Agreement can be found merely on the basis that the Applicants and their legal representatives have not objected to or taken issue with R’s characterisation of the 2^nd Investment Agreement. The alleged detrimental reliance is not based on any evidence adduced by the parties.

46.As regards the 2^nd SD, Mr Wong submits that there is a bona fide dispute in respect of the debt on the following grounds:

(1) The debt was incurred by A1 pursuant to an oral agreement between R and A1 made in January 2021 and A1 admits that he is liable to repay HK$1.5 million to R.

(2) The Loan Agreement does not accord with the oral agreement reached between the parties on 6 January 2021, which was also the date when the sum was transferred to A2. In particular, the borrower should be A1 rather than A2. Neither the date of repayment (6 March 2021) nor interest rate of 6% per annum formed part of the oral agreement.

(3) The Loan Agreement was not supported by consideration since the sum of HK$1.5 million had already been paid by R prior to the Loan Agreement.

(4) The Loan Agreement was signed by A2 under duress in that R threatened to “take other actions regarding [the Applicants’] other dealings” if the Applicants did not sign.

(5) The Loan Agreement should be set aside for undue influence^[7], in view of (a) the presumed trust and confidence between A1 and A2, as husband and wife; (b) R was put on inquiry since the Loan Agreement is manifestly disadvantageous to A2; (c) R and KN had not taken reasonable steps to satisfy themselves that A2 was not under undue influence or had sought independent advice.

47.I do not think that the Applicants have demonstrated that there is a bona fide dispute on substantial grounds in respect of the debt under the 2^nd SD.

48.It is well-established that persons of full age and understanding are bound by the documents they signed unless they can establish a recognised legal basis to disown such documents (Ming Shiu Chung & ors v Ming Shiu Sum & ors (2006) 9 HKCFAR 334 at §§84-87, per Ribeiro PJ). As the Loan Agreement was signed by A2, prima facie she is bound by the terms of such Agreement.

49.The Loan Agreement is supported by consideration. As Mr Kwong submits, the entry into the Loan Agreement with the effect of superseding any previous oral agreement in relation to the sum of HK$1.5 million constitutes good consideration (Chitty on Contracts, 34^th ed., §6-075).

50.Further, the Applicants have not adduced any evidence, let alone sufficiently precise factual evidence, in support of the alleged duress. Even if R’s threat of taking actions in relation the Applicants’ other dealings is made out (which they have not), there is no suggestion or evidence to show that such actions were in any way illegitimate or unconscionable, bearing in mind that a threat to rely on existing contractual rights does not normally amount to duress (Chitty, §10-056).

51.As for the alleged undue influence, no such allegation has been raised by the Applicants in their affirmations. It is not open to Mr Wong to raise the point in the absence of any evidence. In any event, the submission is not well-founded. It is not in dispute that it was KN, rather than A1, who took the Loan Agreement to A2 for her signature. Since the sum of HK$1.5 million was transferred to and received by A2, there is nothing unusual about requiring A2 to repay the amount. This is particularly so when A1 assumed the obligation to guarantee repayment of the amount payable under the Loan Agreement.

Disposition and costs

52.For the reasons set out above, I order that:

(1) the 1^st SD be set aside;

(2) the Application insofar as it concerns the 2^nd SD is dismissed;

(3) R is authorized to present a bankruptcy petition against A2 based on the failure to comply with the 2^nd SD after 14 days of this Decision.

53.As for costs, I make a costs order nisi that there be no order as to costs in respect of the Application. This reflects the fact that both the Applicants and R are partly successful in the Application.

Mr Joshua S. Kanjanapas Wong, instructed by Henry Yu & Associates, for the 1^st – 2^nd Applicants

Mr Alan Kwong, instructed by Jones Day, for the Respondent