Re Zhan Xianming

HCB 3433/2005

[2024] HKCFI 2890

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 3433 OF 2005

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BETWEEN

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D E C I S I O N

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A. Introduction

1.On 6 May 2005, a bankruptcy order (“Bankruptcy Order”) was made against Zhan Xianming (詹向明) (“Zhan”) in his absence upon the bankruptcy petition (“Petition”) presented by the Petitioner, Bank of China (Hong Kong) Ltd (the “Petitioner”).

2.On 2 August 2022, Gracewood International Limited (“Gracewood”) took out a summons for the annulment (“Annulment Summons”) of the Bankruptcy Order. The Annulment Summons, being opposed by Zhan, was scheduled to be heard before me from 11 September 2024 (with 3 days reserved) (the “Hearing”).

3.Only one month before the Hearing, Zhan took out a Summons dated 8 August 2024 (“VCF Summons”) for leave that he be able to attend the Hearing by video-conferencing facilities (“VCF”).

4.The VCF Summons was opposed by Gracewood. The Petitioner and the Official Receiver adopted a neutral position in respect of the VCF Summons and they were excused from attending the hearing.

5.I heard the VCF Summons on 9 September 2024. I dismissed the VCF’s Summons at the hearing, indicating that reasons would be handed down, which I now do.

B. Factual background

6.The salient facts may be summarized as follows.

7.Gracewood was at all material times and is still a company incorporated in Hong Kong, engaging in the business as a wholesale distributor of petroleum and petroleum products.

8.Zhan was at the material times the president, majority shareholder and legal representative of Guangdong Universal Group (廣東星球集團有限公司) (“Universal Group”), a trader in the bulk trading of liquefied petroleum gas in South China; and also a director of Guangdong Province Huaguang Light Industrial Co Ltd (廣東省華廣輕工實業有限公司) (“Huaguang”). It is Gracewood’s case that Huaguang and Universal Group owed to Gracewood a total sum of about US$16,626,816.86 (“Debt”) by 27 May 2002 under certain undertakings and guarantees.

9.On 27 May 2002, Zhan signed a personal guarantee in Chinese (the “Guarantee”) in favour of Gracewood guaranteeing the Debt. However, Universal Group and Huaguang defaulted and failed to discharge the Debt. Zhan could not be located by Gracewood since about June 2002.

10.On the other hand, on 6 May 2005, the Petitioner presented the Petition against Zhan. On 6 July 2005, the Bankruptcy Order was made against Zhan in his absence.

11.According to the report of the Official Receivers dated 19 October 2022, Zhan was considered automatically discharged from bankruptcy on 6 July 2009.[1]

12.In around 2021, through investigation conducted by a private investigator, Gracewood knew for the first time that Zhan had been residing in New Zealand since about 2002. Therefore, on 12 April 2022, Gracewood commenced legal proceedings against Zhan in HCA 335/2022 (the “High Court Action”) in Hong Kong for repayment of the Debt pursuant to the Guarantee.

13.At about the same time, Gracewood also started proceedings in New Zealand for, inter alia, freezing injunction against Zhan and his ex-wife, Tina (Hongjun) Yang (“Yang”), in aid of its claims in the High Court Action.

14.On 2 August 2022, Gracewood took out the Annulment Summons pursuant to ss 33(1) and 33(6) of the Bankruptcy Ordinance (Cap 6) (“BO”).

15.By consent of the parties, the High Court Action was stayed pending the determination of Gracewood’s Annulment Summons.

16.On 22 February 2023, Ng J made an order by consent that, should leave be granted to Gracewood to make the Annulment Summons, the deponents do attend the Court for cross-examination, failing which the affirmations shall not be admissible.

17.On 21 November 2023, Deputy High Court Judge H. Au-Yeung (as he then was) granted leave to Gracewood to apply for annulment of the Bankruptcy Order pursuant to s33 BO. His Lordship further ordered that the deponents including Zhan do attend the Hearing for cross-examination, failing which their affirmations shall not be admitted.

18.Belatedly only one month before the Hearing, Zhan took out the VCF Summons on 8 August 2024. Whilst Gracewood opposed the VCF Summons, the Petitioner and the Official Receivers remained neutral.

C. VCF Summons: the applicable principles

19.The applicable principles are not in dispute.

20.In Re Chow Kam Fai David [2004] 2 HKLRD 260 at §§17-19, the Court of Appeal (Rogers VP and Le Pichon JA) held that it was a question of judgment in each case whether VCF should be used for the taking of evidence. The starting point must be that proceedings are conducted in court; and that the giving of evidence by VCF is an exception and a privilege. The atmosphere of a court is highly important as regards the taking of evidence. The solemnity of court proceedings and its atmosphere is something which plays an important role in the way justice is administered. Therefore, an applicant must establish a sound reason why the privilege should be accorded. The Court may be more disposed to allow VCF where a witness’s evidence is technical or purely factual, without important questions as to credibility.

21.Both parties rely upon Re Nobility School Ltd [2020] HKCFI 891. At §9, Anthony Chan J summarized the principles as follows:-

“(1) The giving of evidence by VCF is an exception.

(2) The starting point is that proceedings are conducted in court. I would add that this is more important when it comes to a trial.

(3) Sound reason is required to justify a departure from the starting point.

(4) The solemnity of court proceedings and its atmosphere is highly important in the taking of evidence.

(5) The court may be more disposed to exercise its discretion to allow evidence by VCF in respect of technical or purely factual evidence which involves no serious issue on credibility or relatively unimportant evidence.

(6) Where the credibility of the witness is seriously contested, it is important for the witness to be examined under the solemn atmosphere of the court.

(7) Costs and convenience may be important consideration which the court will have to weigh in the determination of the application.

(8) Ultimately, it is a matter of judgment of the court choosing the course best calculated to achieve a just result by taking into account all the material considerations, including whether the witness is capable of attending the proceedings, any prejudice to the other party, the Underlying Objectives, any delay to the proceedings and practical considerations like the availability of the facilities (see Practice Direction 29).”

22.His Lordship also said this at §§20-21:-

“20. … The cases where the court would allow the convenience of a crucial witness to justify giving evidence via VCF would be rare.

21 It is an important pillar of our legal system that justice is not only done but be seen to be done. There will be a justified sense of grievance on the part of Tsang that Lin and Ho will have an advantage over him if this application is allowed. The court will be deprived of the opportunity to observe them giving evidence in person under a solemn atmosphere. In addition, there will likely be interruptions of the evidence due to, eg. Quality of the audio, and such interruptions will normally be to the disadvantage of the cross-examiner.”

D. Discussion

23.The gist of Zhan’s case may be summarized as follows:-

(1) First, Zhan was unable to attend the Hearing, for he has been suffering from the chronical illness of aerophobia; and thus he was advised by his doctor not to take long-haul flights, which will put his health at risk.

(2) Second, the Annulment Application is not a trial but only an interlocutory application; and therefore cross-examination of Zhan is not as of right. Giving evidence via VCF would not prejudice Gracewood.

(3) Third, the evidential issues in this case are just technical / purely factual in nature; and that there is no serious issue on credibility. As such, the VCF would not hinder the Court from observing Zhan.

(4) Fourth, Zhan could not afford the airfare and accommodation. In the skeleton argument filed for Zhan, it was even raised for the first time that incurring those costs to come to Hong Kong to testify would render him in breach of the freezing order made against him in the New Zealand Proceedings.

24.I approach with Zhan’s evidence with a pinch of salt.

(1) Zhan was previously represented by Minterellison. When they first proposed in their letter dated 10 January 2023 that Zhan be granted leave to give evidence via VCF, the only reason put forward was that Zhan was unable to travel to Hong Kong because he had not received any Covid-19 vaccinations, and thus did not meet the entry requirements for foreign visitors who were non-Hong Kong residents. It was never suggested that Zhan had suffered from aerophobia as he now asserts, or that such illness would be so serious as to make him incapable of travelling.

(2) Later, when Zhan’s current solicitors proposed in their letter dated 27 June 2024 that he would testify via VCF, the only reason provided was Zhan’s age and health condition, without any suggestion of aerophobia.

(3) Zhan has never explained why aerophobia was never mentioned in the correspondence.

25.Even worse, Zhan failed to provide any justification as to why he is entitled to the privilege of attending the Hearing through VCF.

26.First, I agree with Mr John Scott SC[2] that Zhan’s medical evidence is unsubstantiated and deficient. Zhan could only produce a single-page medical certificate dated 31 July 2024. Yet the medical certificate did not identify any medical examination that the doctor had conducted on Zhan. Nor did the doctor identify any medical history of Zhan. Whilst it was suggested that long-haul flight would cause Zhan illness, it was never suggested that Zhan was not capable of travelling to Hong Kong to give evidence.

27.Second, it was argued for Zhan that the evidence and issues in the Annulment Summons were merely technical in nature. This is completely misconceived.

(1) The Annulment Summons was taken out on the basis that the Bankruptcy Order ought not to have been made, as the preconditions for the Court to have jurisdiction to entertain the bankruptcy petition under s4 BO were not met.

(2) As such, factual disputes such as Zhan’s domicile at the material time are highly controversial and hotly disputed. There are also other factual disputes, i.e. whether Zhan was carrying on business in Hong Kong or had any places of residence in Hong Kong during the relevant period, viz. from 6 May 2002 to 6 May 2005. It is plain that Zhan and his legal representatives have been fully aware of the factual disputes in this case, when Zhan had previously consented to the making of the Order dated 22 February 2023 that leave be granted for cross-examination of the deponents.

(3) In these circumstances, to allow Zhan to give evidence via VCF would inevitably prejudice Gracewood: Re Nobility School Ltd (above) at §§20-21. In fact, as observed by Deputy High Court Judge H. Au-Yeung (as he then was) in Esports Business Development Ltd v Wong Chun Yee Christopher [2022] HKCFI 2627 at §25, any problems arising out of the internet connection and use of VCF may deprive the Court and the examiner the chance to observe the immediate reaction of the witness. Any loss of signal may also give the witness a longer time to think about the question. There may also be concerns that it would be difficult if there are any questions about any assertion from the witness that he may not be able to hear the question.

28.Third, whilst Zhan alleges that he is in financial difficulties and could not afford the airfare and accommodation for attending the Hearing, Zhan has not produced any documents relating to his financial affairs. In any event, such bare allegations are most incredible, when Zhan had been represented by Leading Counsel, both in these proceedings and in the New Zealand Proceedings. It is difficult to understand why Zhan cannot afford the airfare to come to Hong Kong to give evidence, when the evidence before me (which is not disputed by Zhan) reveals that most of the air tickets are in the range of HK$4,000 to HK$8,000.

29.Fourth, Zhan’s allegation that incurring the expenses to come to Hong Kong to testify would give rise to a breach of the freezing order made against him in the New Zealand Proceedings is again misconceived. It was always open to Zhan to apply to the court in New Zealand for approval of expenses. Further, according to Mr Scott SC, Gracewood has no objection to any reasonable expenses that Zhan would incur for attending the Hearing in Hong Kong. In my judgment, it is not open to Zhan to rely upon his own inaction and delay in seeking the approval from the New Zealand Courts as a justification for him not to attend the Hearing.

30.Finally, there has been substantial and inexcusable delay on Zhan’s part in taking out the VCF Summons.

(1) It is not disputed that, as early as in February 2023 when Ng J made the Order for cross-examination of the deponents, Zhan had already known full well that he would have to attend the Hearing for cross-examination.

(2) However, Zhan took out the VCF Summons only belatedly on 8 August 2024, just one month before the Hearing.

(3) Zhan had no satisfactory explanation for the delay. Zhan tried to put the blame on his former lawyers for allegedly giving him advice that he should take out the VCF Summons only one month before the Hearing. Yet this is again a bare assertion. Zhan could not substantiate this by referring to any contemporaneous documents.

(4) Such delay would also prejudice Gracewood, for it would have no opportunity to verify Zhan’s medical conditions.

(5) Such lateness would also mean that there is apparently no time for the parties to reach agreement on the logistics in respect of the video conferencing facilities, such as neutral venues for giving evidence via VCF and arranging representative to attend such neutral venue whilst the witness is giving evidence: Re Nobility School Ltd (above) at §§17-18, per A Chan J.

E. Conclusion

31.Zhan failed to demonstrate any justification for the VCF Summons. In conclusion, the VCF Summons was dismissed with costs to Gracewood.

32.Gracewood asked for gross sum assessment, together with a certificate for two counsel. The parties have respectively filed their skeleton bills and objections. Having considered the matter in the round, Gracewood’s costs are summarily assessed at HK$210,000 (with certificate for two counsel).

Mr. Po Sun, of Carina Chen & Co, for Zhan Xianming

Mr. John Scott SC, leading Mr. Enoch Fong, instructed by Nixon Peabody CWL, for the Interested Party

Messrs. Tsang Chan & Wong, for Bank of China (Hong Kong) Ltd, the Petitioner (attendance excused)

Official Receiver (attendance excused)