Re Chui Tak Keung Duncan

CACV 428/2022, [2024] HKCA 948

On appeal from [2022] HKCFI 2962

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 428 OF 2022

(ON APPEAL FROM HCBI NO 2 OF 2021)

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REASONS FOR JUDGMENT

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Hon Kwan VP (giving the Reasons for Judgment of the Court):

1.On 30 September 2022, Cheng J handed down a judgment (“Judgment”)[1] granting the relief in a summons of a creditor Zhongcai Finance Limited (“Zhongcai”) against the debtor Chui Tak Keung Duncan (“the debtor” or “Mr Chui”) under section 20J of the Bankruptcy Ordinance, Cap 6[2], after a three-day hearing during which the debtor was cross-examined extensively on his affirmations.

2.By the summons, Zhongcai sought an order that the approval of the voluntary arrangement at the creditors’ meeting of 24 March 2021 (“the Meeting”) be revoked or suspended. Further or alternatively, directions were to be given to the nominees or any other person to summon further meeting of creditors to consider any revised proposal the debtor may make or to reconsider his original proposal for individual voluntary arrangement (“IVA Proposal”). The summons was supported by another creditor, Bosonic Limited (“Bosonic”).

3.The judge held there has been some material irregularity at or in relation to the Meeting and therefore revoked the approval of the IVA Proposal at the Meeting. She did not give direction for any further creditors’ meeting. She made a costs order nisi that the costs of and occasioned by the summons be paid by the debtor[3]. The debtor brought this appeal against the Judgment to set aside the order revoking the approval of the IVA Proposal and the costs order against him. We dismissed his appeal with costs to Zhongcai and Bosonic at the conclusion of the hearing. These are the reasons of the court.

Background

4.The relevant background matters are taken largely from §§3 to 13 of the Judgment and may be set out as follows.

5.On 10 November 2020, Profit Big filed a bankruptcy petition against the debtor in HCB 7518/2020[4].

6.Before the petition was heard, on 4 January 2021, the debtor applied for an interim order pursuant to sections 20 and 20A, seeking to stay the bankruptcy proceedings against him. He filed a supporting affirmation on 4 January 2021 (“Chui 1^st”) exhibiting the IVA Proposal, in accordance with section 20A and rule 122C of the Bankruptcy Rules. Annexed to the IVA Proposal was a statement of affairs as at 4 January 2021 (“SOA”).

7.Under the IVA Proposal, the debtor proposed $13 million, to be provided by a “white knight”, as a full and final settlement of 3.19% of all his indebtedness. Paragraph 2.3.1 of the IVA Proposal stated, “Please refer to Annex 4, which is a summary of creditors from my SoA which is subject to details to be provided by the creditors to the Nominees for verification and adjudication for the purpose of the IVA”. Paragraph 2.3.5 stated, “The indebtedness due to my family members are in excess of HK$206 million”. The list of creditors at Annex 2 to the IVA Proposal gave the total figure of $206,800,000 for “Family Members”. The SOA annexed to the IVA Proposal gave the figure of $206,800,000 for “Associate creditors”, and a total of $614,315,485 as the net deficiency of assets over liabilities.

8.On 22 February 2021, the court granted an interim order[5]. Pursuant to section 20(2), the interim order has the effect that during the period for which it is in force, no bankruptcy petition (and other forms of legal proceedings) relating to the debtor can be presented or proceeded with. Mr Alan Chung Wah Tang and Mr Kan Lap Kee were appointed as joint and several nominees (“Nominees”) to act in relation to the IVA Proposal.

9.By letters dated 3 or 10 March 2021, the Nominees asked members of the debtor’s family, including his father (“Father”), mother (“Mother”), sister (“Sister”), wife (“Wife”), mother-in-law and Coqueen Company Limited (“Coqueen”; a company owned 99% by members of the debtor’s family[6]), for documents and information in respect of their claims against the debtor for debts outstanding to them. These creditors are referred to as “Family Members” and the indebtedness to them as “Family Debts”.

10.On 4 March 2021, the Nominees filed their report and comments on the IVA Proposal (“Nominees’ Report”). Paragraph 8.1 of the report summarised the debts as totaling around $614.3 million, with $206,800,000 being the Family Debts. Paragraph 8.18 of the report stated that the debtor disclosed he owed Coqueen, Father, Mother, Sister and Wife “around HK$206 million”.

11.Between 15 and 22 March 2021, the debtor sent several emails to the Nominees, providing what was said to be evidence of the Family Debts. This included an annotated spreadsheet summary of the audited accounts of Coqueen prepared by the debtor on 15 March 2021 (“Coqueen Summary”).

12.The creditors considered the IVA Proposal at the Meeting on 24 March 2021, which was chaired by Mr Kan Lap Kee (“the Chairman”). Paragraph 9 of the report of the Chairman dated 31 March 2021 (“Chairman’s Report”) set out a summary of creditors’ claims as at 24 March 2021, as reported at the Meeting. The total amount of the debts claimed against the debtor, whether by Family Members or other creditors, had increased from $614,315,485 to $904,434,808.16. The Family Debts had increased from $206,800,000 to $427,822,285.38. The debts of other unsecured creditors had increased from $267,115,485 to $304,135,682.04, some of these claims being brought forward only at the Meeting. The estimated rate of return which could be expected by those creditors entitled to a dividend payment on admitted claims would be 2.73%, instead of the 3.19% originally anticipated in the IVA Proposal. The change in the rate of return was brought about not by the increase in the Family Debts (since the Family Members had decided to forgo their rights to a dividend payment) but by the increase in other debts.

13.Paragraph 11 of the Chairman’s Report noted that the proxy holder for Zhongcai raised questions in relation to the increase of some $221 million in the amounts claimed by the Family Members to be admitted for voting purposes. The Chairman responded that the claim amounts had been “updated according to the claim amount as per the Statement of Affairs with reference to new claims and any details of supporting documents, if any, received from all creditors since the notices to creditors were sent.” Zhongcai also asked whether the Family Members would waive their debts for voting purposes. The debtor responded that the Family Members would exercise their rights to cast a vote, but would forgo their rights to receive a dividend distribution under the IVA Proposal.

14.As recorded in paragraph 22 of the Chairman’s Report, the IVA Proposal was approved by 79.38% of the vote by value of the creditors’ claims, including those of the Family Members (“Decision”).

15.By the summonses issued by Zhongcai and Profit Big in April 2021 under section 20J, these creditors sought to revoke the Decision, alleging there was material irregularity at or in relation to the Meeting on a number of grounds. The creditors filed evidence in support of their summonses. In response, the debtor filed three further affirmations (“Chui 2^nd”, “Chui 3^rd” and “Chui 4^th”). He was ordered to tender himself for cross-examination by the creditors. The debtor said he did not ask any of the Family Members to give evidence in support of the debts in these proceedings and they did not do so, nor did the Nominees give evidence in relation to their involvement in the IVA process. On 2 March 2022, the Nominees filed a notice stating that they had ceased to act as from 28 February 2022.

The Judgment

16.Material errors or omissions in the IVA Proposal or the SOA are capable of constituting material irregularity at or in relation to the Meeting for the purpose of section 20J(1)(b)[7].

17.The debtor appeared in person before the judge. His affirmations and submissions are in English. He cited to the judge relevant authorities and testified in English. He impressed the judge as one having “meticulous organisation of material and impressive degree of recollection of detail”, which he demonstrated throughout his oral testimony[8].

18.The judge did not accede to the creditors’ invitation to disbelieve the debtor wholesale. She found the debtor a straightforward witness on the whole, and did not think it should be held against him that he had an impressive memory of the documents and mastery of detail. In assessing his credibility, she bore in mind that he was not a disinterested witness, but one with high stakes in the outcome of the dispute, as the key purpose of the IVA Proposal was to secure a compromise with creditors so as to rescind the bankruptcy petition and avoid the stigma of bankruptcy. She scrutinized his evidence closely where it was not supported independently by contemporaneous documents, although bearing in mind not all transactions would necessarily have been documented in a family setting. She placed greater weight on contemporaneous documents which contradicted his evidence, and little weight on his evidence shown to be self-contradictory. Where his evidence did not reflect the whole truth, she did not extrapolate from such evidence to reject it wholesale[9].

19.Of the various complaints of material irregularity said to be within section 20J(1)(b), the judge found against the debtor only in respect of two major items of the Family Debts, which she held the debtor has failed to discharge the burden of proving on the balance of probabilities were owed by him to the Family Members as alleged. These two items were:

(1) a debt arising from Father’s and Mother’s portion of the 2014 interim dividend of Coqueen loaned to the debtor, which the Nominees admitted in the sum of $169,889,227 (“Dividend Loan”); and

(2) a debt owed by the debtor to Imperia Capital International Holdings Limited (“Imperia Capital”; the debtor’s personal investment holding company), which in turn owed the same to Coqueen, and which the Nominees admitted in the sum of $115,997,990.12 (“Back-to-Back Loan”).

20.Discounting these two major items, the votes in favour of the IVA Proposal would have fallen to 65.53%, below the required majority of 75% for the IVA Proposal to pass. There was therefore a material irregularity at the Meeting as the IVA Proposal ought not to have been approved and the Decision should be revoked[10].

This appeal

21.The debtor was represented on appeal by Mr Johnny Ma, SC[11].

22.In this appeal, the debtor seeks to challenge the judge’s findings of fact that he has failed to establish on the balance of probabilities the Dividend Loan and the Back-to-Back Loan. It is Mr Ma’s contention that the judge’s findings for both items of debt are perverse and hence should merit intervention by the Court of Appeal. This is a high hurdle to surmount.

23.Mr Ma accepted that this appeal should be dismissed even if he made out his grounds on either item of indebtedness. This is because:

(1)  If his contention on the Dividend Loan is rejected and only the Back-to-Back Loan is made out, the percentage of claims voting in favour of the IVA Proposal would be 72.29%[12], less than the majority of 75% required for approval of the IVA Proposal.

(2)  If his contention on the Back-to-Back Loan is rejected and only the Dividend Loan is made out, the percentage of claims voting in favour of the IVA Proposal would be 74.86%[13], still less than the required 75% majority.

The Dividend Loan

24.It is not in dispute that Coqueen had declared a dividend of $180 million in March 2014, or that it was credited to the debtor’s current account with Coqueen (as shown in the ledgers of Coqueen). Based on their respective shareholdings (69% and 29%), the Father was entitled to $124,200,000 and Mother was entitled to $52,200,000 of such declared dividend. The challenge is to the debtor’s assertion that he received Father’s and Mother’s share of the dividend ($124,200,000 and $52,200,000) by way of loan[14]. In other words, the issue before the judge turned on the nature or reason of the credit of these amounts to the debtor’s current account with Coqueen.

25.In Chui 2^nd, the debtor said that a reason for the increase in Family Debts was that the Father and Mother had forgotten to take into account the amount owed by the debtor to them arising from the declaration of interim dividends by Coqueen in March 2014[15]. The total of the amount owed to the Father and Mother, being their entitlement to the dividend, would be $176,400,000. The debtor produced a resolution of all the shareholders instructing Coqueen to credit the interim dividend payable to his current account[16]. He asserted he thereby became indebted to his parents for the equivalent sums of the dividend payments, $124,200,000 to the Father and $52,200,000 to the Mother[17]. For the debt owed to the Father, the amount admitted by the Nominees for voting purpose at the Meeting was however $118,922,458.90, less than the sum of $124,200,000. The debtor claimed he “[does] not know why the sum was so reduced”[18].

26.The amount of Mother’s debt arising out of the Dividend Loan admitted for voting was $50,966,768.19, as opposed to $52,200,000. The Sister, who had a dividend of $1,800,000 credited to the debtor, was omitted for voting purpose for this part of her claim.

27.The amounts admitted by the Nominees for voting would appear to have been taken from the Coqueen Summary, a redacted version of which was exhibited to Chui 2^nd. This was a spreadsheet summary of the audited accounts of Coqueen which the debtor prepared and provided to the Nominees on 15 March 2021, and a redacted version was supplied by the Nominees to the creditors. In the Coqueen Summary, the debtor stated the debt to his parents in this manner:

“Parents Loan to DC [i.e. the debtor]

169,889,227.00 (dividend of CPK [i.e. Father] and Mrs Chui [i.e. Mother] used to repay loan owed by DC in 2013-2014”[19]

28.The creditors contended before the judge that the debts to the Father and Mother were a concoction for inter alia these reasons: there was a discrepancy in the total amount of the debt stated in the Coqueen Summary ($169,889,227) and the total amount of the Dividend Loan of the parents ($176,400,000); the debtor’s explanations why the amount of $176,400,000 was not included in the IVA Proposal or the SOA were fabricated; his evidence that he did not know why the Nominees reduced the amount owed to the Father was inconsistent with the fact that he prepared the Coqueen Summary; his case was inconsistent given that he did not suggest he owed the Sister a debt for her portion of the dividend which was paid to him.

29.The judge’s reasoning[20] for her findings may be summarized as follows:

(1)  On the face of it, there would not necessarily be anything untoward in the parents lending their share of the dividend to the debtor. Similarly, the fact that there is no reference to a loan in either the board resolution declaring the dividend, or the Coqueen shareholders’ resolution instructing Coqueen to credit each of Father’s, Mother’s, Sister’s and the debtor’s share of the dividend to his current account with Coqueen, is not in itself remarkable.

(2)  It is not necessarily unbelievable that the debtor did not recall the loans at the time of preparing the IVA Proposal or the SOA, even though their total was of such a large amount. That said, the judge considered this averred omission and slip in memory “somewhat surprising”, given the meticulous organisation of material and impressive degree of recollection of detail which the debtor demonstrated throughout his oral evidence.

(3)  As to the debtor’s evidence that he had originally referred to Coqueen’s management accounts for 2019 in preparing the SOA, and did not review Coqueen’s 2014 Audited Accounts until Father reminded him to do so upon receiving the Nominees’ request for supporting documents, “whereupon he recalled the relevant events”, the judge thought this evidence is “not implausible”.

(4)  However, even proceeding on that basis, there remain a number of puzzling points.

(5)  First, if Father and Mother had lent their share of the dividend, as was said to be evidenced by the shareholders’ resolution of 3 March 2014, then the entirety of their shares (totalling $176,400,000) would have been lent. However, the Coqueen Summary prepared by the debtor in March 2021, said to have been collated “upon his recollection of the loan”, stated the total loan from his parents to be $169,889,227. His explanation in cross-examination was that when he prepared the summary, he had not looked at Coqueen’s ledgers, and had only referred to the audited accounts; Father had reminded him that the dividend had been used to reduce his current account with Coqueen; the audited accounts showed that the reduction from 31 March 2013 to 31 March 2014 was $169,889,227; he “wanted to calculate conservatively how much [his] parents should claim, as a minimum”, as being the debt owed to them, and this was the figure stated on the Coqueen Summary as a result.

(6)  The judge had difficulty with his explanation. If the entirety of the $176,400,000 was lent to him and credited to his current account with Coqueen as he says, even if there may have been other changes to his current account such that the overall reduction in the amount owed to Coqueen between 31 March 2013 and 31 March 2014 was of a different figure, this would not have affected the fact that $176,400,000 was lent to him. There would be no question of conservatism or otherwise as to the amount of the debt. Although Chui 2^nd exhibited the Coqueen Summary, the debtor did not disclose that in March 2021, he had calculated $169,889,227 as the amount of the loan from his parents, and that he put forward this amount to the Nominees, rather than $176,400,000. To the contrary, in Chui 2^nd, the debtor said he “[does] not know why” the amount of Dividend Loan owed to the Father was reduced to $118,922,458.90, giving the impression this figure had been calculated by the Nominees on an unknown basis, when he had put forward this very amount in the Coqueen Summary as the debt owed to Father.

(7)  Second, on the Coqueen Summary, $118,922,458.89 (70%) of the $169,889,227 was attributed to “Loan from Father” and $50,966,768.19 (30%) was attributed to “Loan from Mother”[21]. These are close to, but not identical to, Father’s and Mother’s respective shareholdings in Coqueen of 69% and 29%. It is unclear how this division was arrived at or what the basis for it might be. It is a further deviation from the supposed loan amounts of $124,200,000 and $52,200,000.

(8)  Third, the debtor says that the Sister’s share of the dividend was also lent to him. However, no claim was made by the Sister of this amount as a debt owed to her. The debtor says that she overlooked this[22]. This may be so, although the Sister has given no evidence to confirm that this was the case. Yet even if so, this would not explain why no reference to the Sister’s loan was included in the Coqueen Summary prepared by the debtor. His notation on the Coqueen Summary against the figure of $169,889,227 (“dividend of CPK and Mrs Chui used to repay loan owed by DC in 2013-2014”) indicates that he did not attribute any of the Sister’s share of the dividend as having gone towards repayment of his debt to Coqueen.

30.The judge concluded that all these points call into question whether there was indeed a loan of Coqueen’s shareholders’ dividend in 2014 as claimed, and noted there has been no evidence from the Father, Mother or Sister to shed any further light on the matter[23]. In the circumstances, she was not satisfied on the balance of probabilities that there was a loan from Father of $124,000,000 (or $118,922,458.90 as admitted by the Nominees) or from Mother of $52,200,000.

31.Mr Ma submitted that the judge came to the above conclusion for three reasons only (the points in §§(5) to (8) above). This is not a proper reading of the Judgment on the evaluation of the debtor’s credibility. The Judgment must be read as a whole, including the general remark made earlier it ought to be borne in mind that the debtor was not a disinterested witness but one with high stakes in the outcome of the dispute; the judge’s observation she found it “somewhat surprising” the debtor did not recall these loans of a very large amount in preparing the IVA Proposal or the SOA; the guarded terms (“not implausible”) in which the judge regarded the debtor’s evidence he did not review Coqueen’s 2014 Audited Accounts until Father reminded him to do so, whereupon he recalled the relevant events; and the repeated comment[24] that none of the Family Members gave evidence in support of their debts. The debtor had accepted there was nothing to prevent the Father, Mother or Sister from giving evidence. The judge made the further comment it is open to the court to infer that their evidence would not have helped the debtor[25].

32.Mr Ma then sought to attack each of the three reasons.

33.On the first reason, he contended that the judge did not understand the debtor’s explanation why there were differences between the total loan amount in the Coqueen Summary ($169,889,227) and the total Dividend Loan the debtor presented to the court ($176,400,000). The judge erred in law and in fact in proceeding on “a supposition not supported by evidence” that the debtor when preparing the Coqueen Summary, had recalled that the entirety of the $176,400,000 was lent to him and credited to his current account with Coqueen. The debtor gave evidence that the Father asked him “to look into the audited accounts and use the audited accounts as the supporting evidence for Coqueen’s claims of debt”[26]. When the debtor prepared the Coqueen Summary (which was a summary of some key items from the audited accounts), he had not looked at Coqueen’s ledgers. He only sent the Coqueen Summary and the audited accounts to the Nominees by email on 15 March 2021[27], not the ledgers. The audited accounts did not show the entirety of the declared dividend of $180 million (or the portion of Father and Mother of $176,400,000) had been credited into the debtor’s current account. It was against the foregoing that the debtor adopted $169,889,227 to “calculate conservatively how much [his] parents should claim as a minimum, simply by looking at the numbers of the audited accounts”[28]. It was only the Coqueen ledgers which showed that the entirety of the declared dividend of $180 million had all been credited to the debtor’s current account. He only looked at the ledgers when he prepared Chui 2^nd[29] and then sought to present the correct position in Chui 2^nd at §§35 to 41. Thus, on the debtor’s evidence, it was not shown that he had recalled the entirety of the $176,400,000 declared dividend had been credited into his current account when preparing the Coqueen Summary.

34.For the above reasons, Mr Ma argued it was perverse for the judge to rely on the discrepancy in the figures of $169,889,227 and $176,400,000 – a difference of merely 3.7% – to doubt the nature of the $180 million indisputably credited into the debtor’s current account with Coqueen, and to conclude that he failed to prove the amount was a loan from his parents on the balance of probabilities.

35.On behalf of Zhongcai, Mr Lincoln Cheung[30] pointed out that Mr Ma was repeating the explanations and re-running arguments made by the debtor which were rejected by the judge. It is unhelpful to repeat submissions already advanced and considered by the judge without identifying palpable errors[31].

36.In any event, we do not accept that the judge had proceeded on “a supposition not supported by evidence” the debtor had recalled, when preparing the Coqueen Summary, that the entirety of the $176,400,000 declared dividend had been credited into his current account. The debtor had given evidence in these terms:

“… at the time of preparing this spreadsheet that you now see in Bundle B1 [i.e. the Coqueen Summary], … we had not – when I say ‘we’ I meant Coqueen, my father, myself or the Coqueen accountant, we did not have the opportunity to look into the ledgers of the -- of Coqueen’s account. All I remember from my father’s representation to me, he reminded me that this 180 million was used to offset my current account. So the notes I made to myself in this spreadsheet was actually my conservative, prudent approach without referring to the underlying ledger, but simply looking at the audited figures of the fluctuation or the variants between the year end 2013 and year end 2014.”[32] (Emphasis supplied)

37.In light of this evidence, we agree with the creditors it strains credulity the debtor would simply adopt the difference between the audited figures for the year ending 2013 and the year ending 2014 to determine his indebtedness to his parents, bearing in mind it was not his case he did not recall the respective shareholdings of his family members. As pointed out by Mr Jonathan Lin for Bosonic[33], the calculation could not have been simpler: by multiplying 180 million by 69% (Father’s entitlement) and 29% (Mother’s entitlement), one could readily arrive at the precise total figure of $176,400,000. It cries out for a convincing explanation why the debtor would have stated $169,889,227 in the Coqueen Summary.

38.Mr Ma was missing the point in stressing that the difference between $169,889,227 and $176,400,000 is merely 3.7%. The central issue is one of credibility of the debtor’s evidence whether his parents did lend their share of the dividend to him. It is entirely correct for the judge to approach his evidence with a critical eye. Where cogent explanation is lacking why the figure of $169,889,227 was used despite his recollection and assertion he became indebted to his parents for the equivalent sums of the dividend payments, it is open to the judge to find she was not satisfied on the balance of probabilities there was a loan as alleged.

39.As for the second reason of the judge – that it is unclear how the 70:30 split between the Father and Mother in the Coqueen Summary was arrived at and on what basis – Mr Ma submitted this was not raised in cross-examination or the submissions. It was procedurally unfair for the judge to take this into account as this was a transgression of the well-known rule in Browne v Dunn (1893) 6 R 67.

40.The applicability of the rule has been explained by Deputy Judge Reyes, SC in Kaifull Investments Ltd v The Commissioner of Inland Revenue [2002] 1 HKLRD 858 at §31. The rule does not inflexibly require every point which might be used against the witness be put to him. There can be no hard-and-fast rule. The paramount consideration is fairness to the witness. The rule is breached if, in all the circumstances, an omission to cross-examine on a specific point is unfair to the witness. As stated by Zervos JA in HKSAR v Chan Hing Kai [2020] 1 HKLRD 1082 at §97, the rule requires flexibility in its application and care and circumspection in the measures employed to address any breach.

41.The debtor was cross-examined on why the sums in the Coqueen Summary differed from those in Chui 2^nd at §§39 to 41 and he testified further on this in re-examination[34]. In his closing submissions at §159, he referred to the cross-examination on the difference in amounts between the entitlement of dividend of the Father and Mother and the Coqueen Summary and repeated his explanation for his calculation of a lesser amount of $169,889,227 in the Coqueen Summary. He explained that his calculation was “a prudent one as it did not account for the entire Interim Dividend amount of $180,000,000, but only accounted for the actual reduction of his current accounts with Coqueen between the two years ending 31 March 2013 and 31 March 2014.” He made the further point that his calculation did not preclude the Nominees from doing their independent verification.

42.In all the circumstances, there was no unfairness to the debtor that he was not specifically asked in cross-examination about the 70:30 split between the Father and Mother in the Coqueen Summary. He had given his explanation on how he came to calculate the figure of $169,889,227 in the Coqueen Summary. He claimed in Chui 2^nd at §43 he “[does] not know why” the debt owed to the Father admitted for voting was reduced to $118,922,458.90, which he repeated in his closing submissions at §159. On his evidence, he was able to explain the reduced total figure of $169,889,227 but not the figure of $118,922,458.90, which is 70% of the total. It was not unfair not to ask him about the 70:30 split.

43.It is open to the judge not to accept his explanation and to take into account that the 70:30 split is a further deviation from the supposed loan amounts of $124,200,000 and $52,200,000.

44.Turning to the third reason which is the absence of the Sister’s claim of 1% of the dividend as a loan in the Coqueen Summary, Mr Ma submitted that this matter was not addressed or examined in evidence at all and was another transgression of the rule in Browne v Dunn. This matter was only raised in submissions. It was raised in Zhongcai’s opening submission at §61 where the criticism was made that the debtor’s case was internally inconsistent as although the Sister’s entitlement to dividend was also credited to his current account with Coqueen, it was not suggested that he became indebted to the Sister. The debtor responded to this in his closing submission at §153. He took the point that this was not raised in Zhongcai’s evidence and went on to submit as follows:

“However, at the material time when the Nominees asked the Debtor’s family to submit the supporting document, she was busy preparing her own and assisting the Debtor’s mother in gathering the supporting documents, and she assumed that either the Debtor or the Debtor’s father who handled Coqueen’s accounting records, would make the submission on her behalf. Unfortunately, it was overlooked, and her entitlement of the Interim Dividend was not included in her claim of debt. There is therefore no inconsistency as alleged.”

45.Mr Ma submitted that the judge ought not to have taken into account the absence of reference to the Sister’s loan in the Coqueen Summary as it was procedurally unfair to the debtor who was a litigant in person. He pointed out in other contexts[35], the judge had declined to hold against the debtor points which were not put to him in cross-examination. Furthermore, the judge had misunderstood the above passage in the debtor’s closing submission in stating that the debtor said the Sister had overlooked making a submission of her claim for the loan of 1% dividend[36]. Properly read, the debtor had submitted in closing the Sister assumed that he or the Father would make the submission on her behalf but the debtor had overlooked this when he prepared the Coqueen Summary.

46.As mentioned, the rule in Browne v Dunn should be applied flexibly and with circumspection, as amply demonstrated by the instances pointed out by Mr Ma where the judge had applied the rule. In this particular instance, there was no breach of the rule. The absence of a claim for the loan of 1% dividend by the Sister is an undisputed fact. The debtor would have been alerted to the apparent inconsistency in his case by the opening submission of Zhongcai. The judge informed him at the beginning of the hearing that he could amplify his evidence-in-chief. He did not do so but had dealt with the apparent inconsistency in his case in his closing submission instead. There was no unfairness to him in the circumstances.

47.As for the contention that the judge had misunderstood his closing submission it was he and not the Sister who had overlooked making a submission of her claim, we do not think the judge had misunderstood. The Sister had assumed (but failed to confirm) that either the Father or the debtor would make the submission on her behalf, and her claim was overlooked as a result. In any event, whether it was the debtor or the Sister who had overlooked her claim is not relevant and does not detract from the judge’s point there was no cogent explanation why no reference was made to the Sister’s loan in the Coqueen Summary.

48.None of the arguments of Mr Ma on the Dividend Loan are of merit. There is no basis to interfere with the judge’s conclusion that she is not satisfied the Dividend Loan was proved on the balance of probabilities. This alone is sufficient for dismissing the appeal.

The Back-to-Back Loan

49.The debtor challenged the finding that he has not established on the balance of probabilities he owed a debt of $115,997,990.12 to Coqueen under a letter of indemnity to Coqueen dated 2 November 2014 (“Letter of Indemnity”) which reads:

“I, Chui Tak Keung, Duncan, being the shareholder of [Coqueen], am aware that as at 31 March 2014 [Coqueen] had the amounts of $115,997,990.12 due by the related company, [Imperia Capital].

I hereby confirm my intention to indemnify any financial losses that [Coqueen] may incur if any of those amounts turn out to be irrecoverable.”

50.The relevant evidence on the Back-to-Back Loan may be stated as follows:

(1)  The debtor was originally the sole director and shareholder of his personal investment holding company, Imperia Capital. In mid-2008, the Father became the majority shareholder of Imperia Capital, but on the basis that the debtor would continue to be personally liable for the debts of Imperia Capital to Coqueen.

(2)  The audited accounts of Coqueen showed that an amount of $115,997,990.12 was due from Imperia Capital to Coqueen. The auditors of Coqueen required the Letter of Indemnity to satisfy them that the debtor would bear the liabilities of Imperia Capital in the amount of $115,997,990.12. This was provided to the auditors on 18 November 2014.

(3)  Chui 3^rd described this loan advanced by Coqueen to Imperia Capital as “effectively loans advanced to [him].”[37] He deposed that in about June 2013, Coqueen was to receive $115,997,990.12 from Professional Guide Enterprise Limited (“Professional Guide”), following the settlement of a dispute over the Fook Lam Moon companies. It was decided by Coqueen’s board that the funds would be lent to him. He withdrew the sum by instalments. In order to distinguish between this loan and other loans to him from Coqueen, it was decided that the funds from Professional Guide would be booked to Imperia Capital’s current account with Coqueen. Hence, the relevant ledger entries of Coqueen described the funds as having been received by the debtor “from Professional Guide on behalf of Imperia”.

(4)  In his oral testimony, the debtor explained the treatment in the ledgers of Coqueen as a “back-to-back” loan from Coqueen to Imperia Capital and then from Imperia Capital to him, so that he owed the debt directly to Imperia Capital[38].

51.The judge took the view that the Letter of Indemnity did not create any legal obligation on the part of the debtor, whether to Coqueen or Imperia Capital, to bear this debt. It indicated a mere intention on the debtor’s part to indemnify Coqueen for its losses in certain circumstances[39]. The only significance of a back-to-back loan would be to support an argument that the debtor owed a debt irrespective of the enforceability of the Letter of Indemnity[40]. However, the documents produced (the audited accounts of Coqueen, the ledgers of Coqueen, the Letter of Indemnity) do not show any back-to-back loan was made[41]. His oral evidence of a back-to-back loan was contradicted by the contemporaneous records and the debtor’s own considered affidavit evidence[42]. She therefore rejected his oral evidence.

52.Mr Ma submitted that the judge was wrong to take the view that the debtor had “developed” his evidence[43] and only mentioned there was a back-to-back loan in his oral evidence. He pointed to the Coqueen Summary prepared by the debtor on 15 March 2021, in which these statements appeared:

“Coqueen Loan to Imperia

115,997,990.12 (which Imperia loaned to DC) [i.e. the debtor]”

And

“	31/3/2018
DC due to Coqueen	68,948,639.48
Imperia due to Coqueen	115,997,990.12
Total loaned to DC (direct + indirect)	184,946,629.60”

53.Mr Ma submitted that the judge failed to take these statements in the Coqueen Summary into account. The “indirect” loan was plainly referring to the loan of $115,997,990.12 from Coqueen to Imperia Capital and then from Imperia Capital to the debtor. The judge was wrong to hold that the debtor had “developed” his evidence about a back-to-back loan.

54.We agree with the creditors the judge did not err in finding that the debtor had developed his evidence and came up with a back-to-back loan only in his oral evidence. This is borne out by the chronology of the evidence:

(1)  In Chui 2^nd, the debtor stated that the total liabilities owed by him to Coqueen included “the liabilities owed by Imperia Capital to Coqueen” in the amount of $115,997,990.12, for which he signed the Letter of Indemnity[44]. There was no mention of any loan advanced from Imperia Capital to him.

(2)  Although the Coqueen Summary was exhibited to Chui 2^nd, the remark of “Coqueen Loan to Imperia 115,997,990.12 (which Imperia loaned to DC)” was redacted from the exhibit.

(3)  It was after Zhongcai filed a second affirmation objecting to the inclusion of Imperia Capital’s debt to Coqueen as a debt of the debtor that Chui 3^rd was filed, in which he described the amount of $115,997,990.12 as “effectively loans advanced to [him].”[45]

(4)  In opposition to the discovery application taken out by Zhongcai for unredacted documents, Chui 4^th was filed, in which he explained that the redacted portion of the Coqueen Summary were notes to himself and “the information is irrelevant as proof of debts”[46]. As to the statement of “Total loaned to DC (direct + indirect)” in the Coqueen Summary, he merely explained that this statement “added up the amount [he] owed Coqueen directly and the amount he owed indirectly through Imperia Capital”[47].

(5)  The judge ordered the redacted portion of the Coqueen Summary to be disclosed.

(6)  It was under cross-examination that the debtor first mentioned a back-to-back loan[48]. Zhongcai’s counsel pointed out to him that he did not mention this in any of his affirmations. His explanation was that he “might have slightly missed to state here explicitly that the loan from Coqueen to Imperia Capital was then loaned back to [him]. [He] was missing this one last piece of the puzzle.”[49]

55.On this evidence, the judge was entitled to take the view that the debtor had developed his evidence with the progression of the case. He had given a different description of the loan to Imperia Capital in Chui 2^nd, Chui 3^rd and Chui 4^th, when the Coqueen Summary was redacted. The redacted portion formed no part of the debtor’s affirmation evidence and was not intended to be referred to by him. It would not be right to read those parts of the affirmations which are not consistent with the Back-to-Back Loan as if the Coqueen Summary had not been redacted. The debtor had asserted it was justifiable and reasonable to redact parts of the Coqueen Summary as they contained “irrelevant information”[50]. He cannot now complain that the judge had erred in failing to take into account such information. It was only after the redacted portion was disclosed that he mentioned a back-to-back loan in his oral evidence. The creditors have a valid point that this showed how the debtor had developed his case to fit the evidence.

56.Mr Ma then submitted that the judge was wrong about the contemporaneous records (Coqueen’s audited accounts, ledgers and the Letter of Indemnity) that they contradicted the Back-to-Back Loan. His arguments may be summarized as follows:

(1)  For the audited accounts, they were not consolidated accounts but merely Coqueen’s audited accounts. As the Back-to-Back Loan was not a matter that concerned Coqueen, one would not expect to find a reference to this in the audited accounts of Coqueen. There was no contradiction.

(2)  As to the treatment in the ledgers of Coqueen, the judge relied on the description that the amounts were received by the debtor “on behalf of Imperia Capital” and not in the debtor’s own right[51]. However, she failed to take account of the fact that the amount of $115,997,990.12 was actually received by the debtor. It was from Coqueen’s perspective that it regarded Imperia Capital as its debtor (to distinguish in the accounts this loan from other loans to the debtor in that the source of this loan came from Professional Guide). As the nature or reason of the debtor’s receipt of the amount vis-à-vis Imperia Capital by way of a loan was of no concern to Coqueen, this was not reflected in Coqueen’s ledgers. Again, there was no contradiction.

(3)  The judge noted that the Letter of Indemnity did not describe the loan as one from Imperia Capital to the debtor and remarked that the debtor would not be giving an indemnity if he was the debtor[52]. She failed to take into account the circumstances under which the indemnity was provided. The Father and the auditors of Coqueen all acknowledged that the money actually went to the debtor. Hence, the auditors required him to provide the Letter of Indemnity so that he was “ultimately responsible for this loan amount that Imperia Capital is indebted to Coqueen”[53]. For Coqueen’s accounting purposes and consistent with its ledgers, it was correct for the Letter of Indemnity to record the loan of $115,997,990.12 as “due by the related company, Imperia Capital”. There was no need to mention the loan from Imperia Capital to the debtor as that did not concern Coqueen and the debtor was not Coqueen’s debtor from Coqueen’s perspective. It was because the monies in fact went to the debtor that he was asked to indemnify Coqueen for the loan owed by Imperia Capital. Properly understood, the Letter of Indemnity did not contradict the Back-to-Back Loan as described by the debtor.

(4)  The judge’s rejection of the Back-to-Back Loan was perverse. At most, there was an error in identifying the proper creditor for the loan of $115,997,990.12 for the IVA Proposal and the Meeting. Whether Coqueen or Imperia Capital was the creditor would have been immaterial in the circumstances, the result of the Meeting would not have been different had the error not occurred. Further, the court has discretion whether to revoke the approval of the IVA or direct the summoning of a further meeting of creditors.

57.The gist of the above submissions is that “from Coqueen’s perspective, the loan was made to Imperia Capital; but from Imperia Capital’s perspective, the loan was made to [the debtor],” as noted in §65 of the Judgment. This contention was made in the debtor’s closing submission at §§165 to 169, and was rejected by the judge, who was entitled to attach weight to the fact that none of the documents produced by the debtor showed any back-to-back loan[54]. As the debtor had said in evidence, “[He] was missing this one last piece of the puzzle.” It is open to the judge to reject his attempt to explain away this missing piece of the puzzle and the apparent inconsistency with the documents produced. There is no palpable error. The appellate process is not a platform for repeating submissions on the evidence with the hope that the appeal court may be persuaded to take a different view.

58.There is no basis to interfere with the judge’s decision in rejecting the debtor’s oral evidence of the Back-to-Back Loan.

59.Coqueen was wrongly admitted to voting for the debt of $115,997,990.12 and this error could not be said to be immaterial. We decline to consider the exercise of discretion to revoke the approval of the IVA or to summon a further meeting of creditors. The debtor has not suggested in the proceedings below that in the event the Decision is revoked, any direction should be given for the summoning of any further meeting to reconsider his IVA Proposal[55], nor did he seek such relief in the amended notice of appeal. In any event, as he has failed on the Dividend Loan, he would not be able to establish that the percentage of claims voting in favour of the IVA Proposal would reach 75% or above.

60.For all the above reasons, the debtor’s appeal against the Judgment was dismissed.

Mr Lincoln Cheung and Mr Jason Kung, instructed by Vincent T K Cheung, Yap & Co, for a Creditor, Zhongcai Finance Limited (Respondent)

Mr Jonathan Lin and Mr Jacky Ho, instructed Cheng & Ng, for a Creditor, Bosonic Limited (Respondent)

Profit Big Enterprises Limited, a Creditor, absent

Mr Johnny Ma SC and Mr Kevin Lau, instructed by Patrick Chu, Conti Wong Lawyers LLP, for the Debtor (Appellant)