William Wang v. Bank of China, Singapore Branch
Read the full judgment text of HCSD 23/2003 on BabelCite. This HCSD judgment was delivered on 19 November 2003.
1. By a Statutory Demand ("the 1st Statutory Demand") dated 13 June 2003 the Respondent ("the Bank") claimed payment from John Wang of certain amounts as follows:-
Cited by 2 cases · Cites 5 cases
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HCSD000023/2003 HCSD 22/2003 IN THE HIGH COUOF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE APPLICATION TO SET ASIDE STATUTORY DEMAND NO. 22 OF 2003 ____________
____________ AND HCSD 23/2003 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE APPLICATION TO SET ASIDE STATUTORY DEMAND NO. 23 OF 2003 ____________
____________ AND HCSD 24/2003 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE APPLICATION TO SET ASIDE STATUTORY DEMAND NO. 24 OF 2003 ____________
____________ (Heard Together) Coram: Hon Reyes J in Chambers Date of Hearing: 19 November 2003 Dates of Decision: 19 November 2003 Date of Handing Down Reasons for Decision: 5 December 2003 _____________________________ REASONS FOR DECISION _____________________________ I. Introduction 1.By a Statutory Demand ("the 1st Statutory Demand") dated 13 June 2003 the Respondent ("the Bank") claimed payment from John Wang of certain amounts as follows:-
2.By a Statutory Demand ("the 2nd Statutory Demand") dated 13 June 2003 the Bank claimed payment from William Wang of US$7,980,000.00 in respect of the outstanding Fonda Facilities pursuant to the 1996 Fonda Guarantee. 3.By a Statutory Demand ("the 3rd Statutory Demand") dated 13 June 2003 the Bank claimed payment from Jeanny Lie of US$27,000,000.00 (in relation to Acada); US$32,980,000.00 (in relation to Fonda) and S$327,608.04 (in relation to Acada Singapore) pursuant to the 1983 Acada Guarantee, the 1983 and 1996 Fonda Guarantees and the 1992 Acada Singapore Guarantee respectively. 4.On 30 June 2003 John Wang, William Wang and Jeanny Lie (collectively, "the Applicants") respectively applied to set aside the 1st, 2nd and 3rd Statutory Demands (collectively, "the Statutory Demands"). 5.At the hearing of the 3 applications ("the Setting-Aside Applications") on 19 November 2003 I refused an application by Mr B K Ho (counsel for the Applicants) to adjourn the substantive hearing of the Setting-Aside Applications pending the Applicants' appeal against an Order ("the Discovery Order") dated 29 October 2003. By the Discovery Order, Deputy High Court Judge Poon dismissed the Applicants' Summons ("the Discovery Summons") dated 30 September 2003 for specific discovery. Adjournment having been refused, I heard submissions on the Setting-Aside Applications. At the end of those submissions, I dismissed the Setting-Aside Applications. I set out below my reasons for dismissing Mr Ho's adjournment application and the Setting-Aside Applications. II. Background A. Basic Facts 6.The Bank was incorporated in the Mainland and has a branch office in Singapore. 7.Acada, Fonda and Acada Singapore (collectively, "the Companies") are owned and controlled by the Wang family. 8.John Wang and Jeanny Lie were appointed directors of Acada on 28 April 1983. According to Acada's Annual Return made up to 22 April 1997, John Wang and Jeanny Lie were still directors of Acada in 1997. The same return records that in 1997 John Wang held 1,750,000 of Acada's 2,500,000 shares and William Wang held the balance of 750,000 shares. Acada's Annual Return dated 22 April 2003 confirms that in 2003 John Wang and Jeanny Lie were still directors of Acada. Insofar as shares are concerned, the 2003 Return shows that John Wang's 1,750,000 shares had been transferred at an unspecified time to Acada Group Limited ("Acada Group"), while William Wang continued to hold 750,000 Acada shares. 9.John Wang and Jeanny Lie were appointed directors of Fonda on 1 January 1982. They were still directors of Fonda in 1995. See, for example, a Resolution dated 1 September 1995 authorising the Bank to act upon fax instructions in relation to Fonda's accounts signed by John Wang as Director and Jeanny Lie as Director and Secretary. That remained the position in mid-1996, as is evident from an extract from a Minute dated 10 April 1996 whereby Fonda's Board resolved to accept the Fonda Facilities from the bank. The Minute is signed by John Wang as Director and Jeanny Lie as Director and Secretary. In 1996 John Wang held 4,500 shares in Fonda, William Wang 500 shares. According to Fonda's Annual Return dated 6 November 2002, in 2002 Fonda's directors were John Wang and William Wang, while Fonda's shareholders were Acada Group (4,500 shares) and William Wang (500 shares). 10.As for Acada Singapore, John Wang was appointed director on 1 October 1981 and Jeanny Lie on 23 January 1984. As at 31 January 2002 Acada Group, Mr Lau and Goh Phoon Keong were shareholders of Acada Singapore. 11.The 1983 Acada and Fonda Guarantees are in similar terms. On signing both, John Wang stated his occupation as a "Businessman", while Jeanny Lie described herself as a "Business-woman". The 1983 Acada Guarantee guaranteed the Acada Facilities up to a limit of US$27,000,000.00 "together with a further sum comprising the accrued interest on that amount". The 1983 Fonda Guarantee guaranteed the Fonda Facilities up to a limit of US$25,000,000.00 plus accrued interest thereon. 12.The following are material terms of the 1983 Acada and Fonda Guarantees:-
13.The 1996 Fonda Guarantee has terms similar to those just quoted from the 1983 Acada and Fonda Guarantees. The 1996 Fonda Guarantee was subject to a limit of US$7,980,000.00 plus accrued interest thereon. It was signed (among others) by John Wang, Jeanny Lie and William Wang as Directors. Their signatures are stated by the document to have been witnessed by Mr Lawrence Lam, a solicitor and notary public, on 15 April (signatures of John Wang and Jeanny Lie) and 19 April (signature of William Wang). Just above the signatures of the Guarantors, the following has been typed in: "NOTE TO WITNESS: PLEASE ENSURE THAT THE GUARANTEE IS EXPLAINED TO THE GUARANTORS." 14.The 1992 Acada Singapore Guarantee is in similar terms to the Guarantees described above. It is subject to a limit of S$1,300,000.00 plus accrued interest thereon. It was signed (among others) by John Wang and Jeanny Lie as directors. The 1996 Acada Singapore Guarantee states that the signatures were witnessed by Mr W I Cheung, a notary public. There is a note above the signatures which is identical to that in the 1996 Fonda Guarantee. 15.The Bank first agreed to extend the Acada Facilities by a letter dated 22 October 1983. The Acada Facilities comprised an Overdraft Facility of US$2,000,000.00 and a Letter of Credit/ Trust Receipt Facility of US$25,000,000.00. The Acada Facilities were subject to a Review Term to the effect that:-
16.By letter dated 18 November 1997 the Bank agreed to continue granting the Acada Facilities. It was a term of the continuance that the 1983 Acada Guarantee remain in full force and effect. On 8 December 1997 John Wang and Jeanny Lie, as joint signatories of Acada's bank account with the Bank, signed a copy of the 18 November 1997 letter to signify acceptance of its terms. 17.By a Deed of Confirmation dated 3 July 1997 John Wang confirmed that the 1983 Guarantee would remain in full force and effect in consideration of the Bank continuing the Acada Facilities. Jeanny Lie executed a similar Deed of Confirmation on 1 September 1998. At the bottom of the Deed as executed by Jeanny Lie, the following statement occurs:-
I shall refer to the 2 Deeds as "the Confirmation Guarantees". 18.The 18 November 1997 letter further stated:-
The Indonesian Land is owned by P T Artha Paraguna. The title deeds to the Indonesian Land were delivered to the Bank to secure the Acada Facilities. But, according to the Affirmation of Lim Sock Huang filed on the Bank's behalf, the Bank's Indonesian lawyers have advised that the delivery of title deeds was insufficient to create a legal or equitable mortgage and the Bank holds no enforceable security over the Indonesian Land. 19.The Bank first agreed to extend the Fonda Facilities by a letter dated 22 October 1983. The Acada Facilities comprised a Letter of Credit/ Trust Receipt Facility of US$25,000,000.00. The Fonda Facilities were subject to a Review Term similar to that which the Bank stipulated in the Acada Facilities. 20.By letter dated 3 April 1996 the Bank agreed to augment the Fonda Facilities with a Banker's Guarantee/ Revolving Short Term Loan facility of US$7,980,000.00. It was a term of such addition to the Fonda Facilities that the 1996 Fonda Guarantee be executed. As security for the addition to the Fonda Facilities, a First Preferred Naval Mortgage was also created in the Bank's favour over the vessel "ACADA DOLPHIN" ("the Vessel"). 21.The Bank first agreed to extend the Acada Singapore Facilities in a letter dated 9 April 1992. The Acada Singapore Facilities comprised a Term Loan of S$1,300,000.00. The Acada Singapore Facilities were revised to an Overdraft Facility of S$200,000.00 and a reduced Term Loan of S$277,000.00 by letter dated 18 November 1997. 22.By letters dated 10 January 2003 to the Companies respectively, the Bank's Singapore solicitors (Messrs Rajah & Tann ("R & T")) stated that the Acada, Fonda and Acada Singapore Facilities had been cancelled in consequence of the defaults of the Companies. R & T demanded payment of the outstanding balances under each of the Facilities. On 10 January 2003 R & T wrote separately to John Wang, William Wang and Jeanny Lie to enforce the Guarantees signed by each of them. 23.The Bank uplifted a fixed deposit of US$1,100,000.00 to reduce Acada Singapore's indebtedness on 27 February 2003 pursuant to a Letter of Set Off dated 18 November 1997. The Acada Singapore indebtedness referred to in the 1st and 3rd Statutory Demands reflected the balance due after set-off. The Acada Singapore debt was later reduced to zero from the sale proceeds of 2 Singapore properties which Acada Singapore mortgaged to the Bank to secure the Acada and Acada Singapore Facilities. The sale took place on 28 August 2003. As a result, the Bank no longer pursues the debt claimed in the 1st and 3rd Statutory Demands in respect of the 1992 Acada Singapore Guarantee and the Acada Singapore Facilities. 24.Part of the sale proceeds from the 2 Singapore properties was used to reduce the balance due from Acada. Excluding interest due since the 1st and 3rd Statutory Demands, US$33,209,056.26 remains outstanding under the Acada Facilities. This sum is still above the US$27,000,000.00 limit (excluding accrued interest) of the 1983 Acada Guarantee. 25.The Vessel was sold for US$3,373,700.00. The sum of US$2,995,134.41 remaining after payment of legal costs, arrest costs, crew claims and insurance premiums was used to reduce Fonda's debt. The Statutory Demands claim Fonda's outstanding balance after deduction of the proceeds from the sale of the Vessel. B. Singapore Banking Act (Chapter 182), 1970 Revised Edition 26.The Applicants claim that the original loans granted to Acada and Fonda in 1983 under the Acada and Fonda Facilities were illegal under the Singapore Banking Act (Chapter 182), 1970 Revised Edition ("the Act"). They contend that the 1983 Acada and Fonda Guarantees are accordingly unenforceable. I summarise here the relevant provisions of the Act. 27.As it stood in 1983, the Act provided in s. 25(1) that:-
28.The Authority mentioned in the Act is defined as the Monetary Authority of Singapore (s. 2(1)). The expression "capital funds" in s. 25 is defined in s. 2(3) as:-
Section 31 of the Act provided that, for the purposes of s. 25, "there shall be deducted from the capital funds of the bank any debit balance appearing in the profit and loss account of the bank". 29.Section 33(1) of the Act stipulated:-
30.Section 25(1) of the Act was repealed in 1984 when it was replaced by a new s. 29(1). The latter provision read:-
Section 29(1) was revised in 1993 to stipulate as follows:-
By s. 2(1) "person" includes corporations. 31.Following the 1984 amendments to the Act, s. 29(1)(b) provided as follows:-
Section 29(5) defined "substantial loan" to mean:-
That definition was refined in 1993 to:-
32.The 1984 amendments to the Act also introduced a new s. 69A which came into effect on 9 March 1984. That provided as follows:-
Section 69A later became s. 77 of the Act by which time it conferred an exception to ss. 29(1)(a) and (b) mentioned above. 33.The Acada and Fonda Facilities were denominated in US$ and granted under an Asian Currency Unit ("ACU"). The Bank, having been incorporated outside Singapore, has been authorised by the Authority to operate an ACU since 27 February 1980. C. The Discovery Summons 34.The Applicants allege that Mr Lee, a family friend who worked for Bank of China Hong Kong branch and helped the Wangs obtain the Acada and Fonda Facilities in 1983, informed John Wang that:-
No other evidence has been adduced in support of the allegation that the Bank breached the Act. There is no affidavit from Mr Lee who died in February 2003. The Applicants say that they are unable to ascertain from publicly available documents whether, in granting the Acada and Fonda Facilities, the Bank acted in breach of the Act by lending in excess of its capital funds. 35.Conscious of the lack of evidence for their case on the Bank exceeding its capital funds, the Applicants took out the Discovery Summons seeking disclosure by the Bank of the following documents:-
36.In his Decision setting out reasons for dismissing the Discovery Summons, Judge Poon stated (at §12):-
37.The Applicants filed a Notice of Appeal against the Discovery Order on 10 November 2003. The Court of Appeal refused to hear the appeal on an urgent basis prior to the hearing before me on 19 November 2003. As at the latter date, no hearing appointment had been fixed for the appeal. III. Discussion A. General 38.Bankruptcy Rules ("BR") r. 48 provides as follows on applications to set aside a statutory demand:-
39.BR r. 44(5) mentioned in r. 48(5)(c) provides:-
40.Where a person applies for a statutory demand to be set aside under BR r. 48(5)(b), the Court considers whether the debt claimed is bona fide disputed on substantial grounds. "Substantial grounds" means grounds of substance. Thus, an applicant has an evidential burden of showing that there is both legal and factual substance to the alleged dispute between himself and the creditor. 41.As to factual substance, while the BR r. 48(5)(b) test bears some analogy to that which would apply in an application for summary judgment under RHC Order 14 Rule 3, the 2 tests are not identical. As in Order 14, it is not enough for an applicant seeking to set aside a statutory demand merely to assert the existence of a dispute or the existence of a counterclaim, set-off or cross-demand. The Court has to evaluate whether the evidence adduced by the applicant is believable (in the sense of being capable of belief). But, in contrast to Order 14 where a defendant need only establish a fair probability of a defence, BR r. 48(5)(c) expressly requires that an applicant show that he has a substantial defence (meaning a defence of substance). 42.Mr Ho relies on 2 defences:-
B. Illegality 43.Mr Ho argues that the 1983 Acada and Fonda Guarantees are unenforceable, because the Acada and Fonda Facilities were granted in contravention of the Act. That would still leave the Bank's claim for US$7,980,000.00 under the 1996 Fonda Guarantee. To deal with that, Mr Ho relies on the Indonesian Land for a set-off. John Wang's affirmation evidence asserts that the Indonesian Land is worth about US$10,000,000.00. This means (Mr Ho says) that, to the extent that it has an equitable mortgage over the Indonesian Land, the Bank holds a security which exceeds the claim under the 1996 Fonda Guarantee. There being no effective claim under any of the Guarantees, Mr Ho submits that the Court should exercise its discretion under BR r. 48(5) to set aside the Statutory Demands. 44.Mr Ho suggests that Judge Poon failed to appreciate that s. 69A of the Act did not come into effect until March 1984. Since the Acada and Fonda Facilities became available in 1983, the ACU exception in s. 69A could not have operated to exempt the Bank from compliance with the then s. 25(1)(a) of the Act. For this reason, Mr Ho contends that Judge Poon wrongly rejected the Discovery Summons. Unless an adjournment were granted pending the Applicants' appeal against the Discovery Order, the Applicants would be deprived of the chance to rely on their illegality argument. 45.In my view, Judge Poon rightly dismissed the Discovery Summons as a fishing expedition. The allegation that the Bank exceeded its capital fund borrowing allowance under the Act in 1983 is wholly unparticularised. It is pure speculation. 46.Moreover, regardless of the outcome of the appeal against the Discovery Order, I think that the illegality argument lacks legal and factual substance. I set out below my reasoning for this conclusion. I shall proceed on the basis that, in originally extending the credit facilities to Acada and Fonda in 1983, the Bank somehow offended against the Act. 47.Mr Ho's argument depends on an assumption that the monies loaned out between October 1983 (when the Acada and Fonda Facilities were granted) and March 1984 (when s. 69A of the Act came into effect) are exactly the same monies for which the Bank seeks repayment today. This is because, insofar as the Acada and Fonda Facilities were made (or continued to be made) available by the Bank (and were drawn on by Acada and Fonda) after s. 69A of the Act came into effect in March 1984, such subsequent lending would have been exempted from compliance with s. 29(1). From March 1984 use of the Acada and Fonda Facilities could not have been illegal whatever the position might have been beforehand. 48.Mr Ho's critical assumption is unsupported by the evidence. Indeed, I do not think that one can plausibly make that assumption, particularly after a lapse of nearly 20 years between the grant of facilities in 1983 and the issue of the Statutory Demands in 2003. 49.The Acada and Fonda Facilities were effectively running account facilities between Acada or Fonda on the one hand and the Bank on the other. Debit balances on such running account would have fluctuated over the years as the facilities were drawn on (in whole or in part), repaid (in whole or in part), drawn on again (in whole or in part), repaid again (in whole or in part) and so forth, in accordance with the business needs of Acada and Fonda. 50.There is no suggestion in the Applicants' affirmations that the monies loaned in late 1983 and early 1984 have not already been paid back long ago. The Applicants have not presented evidence to show that precisely the same monies lent out in late 1983 and early 1984 have remained outstanding over the years. What evidence the Applicants have put forward suggests the contrary. 51.John Wang says that, with the provision of credit by the Bank in 1983, the businesses of Acada and Fonda prospered and grew "many folds". This would mean that Acada and Fonda should have been able to meet their financial commitments (including those owed to the Bank under the Acada and Fonda Facilities) as and when due. According to John Wang, it was not until around 1992 or 1993 that the business of Acada and Fonda declined "when the Mainland implemented the well known 'mega control'". Further retrenchment apparently occurred following the 1997 Asian financial crisis and afterwards, with the result that since 1997 "[t]he Group has been operating under difficult times and staff were reduced to the bare minimum". 52.It follows from the available evidence that it was only from 1992 at the earliest that Acada and Fonda would have experienced any difficulty in repayment. Until then at least, the revolving credit afforded by the Acada and Fonda Facilities would presumably have been drawn on and replenished from time to time. In fact, despite hard times from 1992 onwards, Acada and Fonda's credit record with the Bank was still good enough to merit the grant of the 1992 Acada Singapore Facility, the grant of the additional $7,980,000.00 facility to Fonda in 1996, and the continuance of the Acada Facility in 1997. 53.Since there is no evidence that the underlying debts now being claimed by the Bank under the 1983 Acada and Fonda Guarantees specifically relate to monies borrowed by Acada or Fonda prior to March 1984, I am unable to treat the Bank's present claims against John Wang and Jeanny Lie on the 1983 Acada and Fonda Guarantees as claims in respect of monies loaned before March 1984. It is more likely that the debits to the Acada and Fonda Facilities underlying the Bank's demands on the 1983 Acada and Fonda Guarantees were incurred more recently or (at any rate) long after March 1984. Accordingly, in light of s. 69A, there is no reason why the Bank should be prevented from now enforcing its claims under the 1983 Acada and Fonda Guarantees. 54.The foregoing analysis, based on a consideration of the available evidence, would dispose of Mr Ho's illegality argument regardless of the outcome of the appeal against the Discovery Order. Even if discovery were ultimately ordered by the Court of Appeal and it were found that the Bank in 1983 had made available credit facilities in excess of its capital funds, that circumstance alone would render neither the Bank's claim under the Acada and Fonda Facilities nor the Bank's claim under the 1983 Acada and Fonda Guarantees invalid. 55.It is possible to take the analysis further. I have so far operated on the premise that, from a proposition ("Proposition X") that the loan of monies under the Acada and Fonda Facilities prior to March 1984 was illegal under s. 25(1) of the Act, the conclusion ("Conclusion Y") can logically be drawn that the Bank's claims under the 1983 Acada and Fonda Guarantees would be unenforceable if such claims related to pre-March 1984 loans. On closer examination, however, it seems to me that, even if monies were originally loaned under the Acada and Fonda Facilities prior to March 1984 and those very same monies have remained and continue to be outstanding up to today, it does not follow that claims under the 1983 Acada and Fonda Guarantees for such monies fall outside the exemption conferred by s. 69A of the Act. Proposition X does not lead to Conclusion Y. 56.It is important to consider the implications arising from the running or revolving nature of the Acada and Fonda Facilities carefully. Tha credit was made available by the Bank on a continuing basis, subject to constant review by the Bank in accordance with the respective Facilities' Review Terms. This means that, on an ongoing basis, at each moment during the lifetime of the credit facilities, an offer for continuation of the Acada and Fonda Facilities was being made by the Bank and (by using the facilities) the Bank's offer was being continually accepted by Acada and Fonda. 57.Thus, on 9 March 1984, when s. 69A came into effect, the Bank was in law offering to continue the Acada and Fonda Facilities (whatever may have been the debit balances under the same) in consideration of Acada and Fonda continuing to be bound by the terms of the respective Facilities. It was open to Acada and Fonda at that moment (just as it has been open to Acada and Fonda at any moment during the lifetime of the Acada and Fonda Facilities) to terminate the facilities. Had Acada and Fonda terminated the facilities on 9 March 1984, the Bank would inevitably have requested payment of outstanding debit balances. It may or may not have been possible at that stage to argue that the loans made prior to 9 March 1984 were illegal and unenforceable. But termination did not happen then. Instead Acada and Fonda continued with the Acada and Fonda Facilities. In terms of legal analysis, they chose to accept the Bank's ongoing offer:-
In return for the Bank not calling in outstanding amounts on the Acada and Fonda Facilities on 9 March 1984, Acada and Fonda by their conduct agreed to remain bound by the terms of the Acada and Fonda Facilities. 58.As a result, whatever debit amounts there were on the Acada and Fonda Facilities continued to be treated as loans to Acada and Fonda as from 9 March 1984. Such continuation of the loans from 9 March 1994 would have been exempted by s. 69A from the application of s. 29(1) of the Act. As from 9 March 1984, whatever may have been the position in respect of their legality or illegality beforehand, the loans were rendered fully legal and valid by s. 69A. In the circumstances, there is no reason why such loans, even if involving monies lent before 9 March 1984, should not be capable of being claimed under the 1983 Acada and Fonda Guarantees. 59.There are 2 components to Mr Ho's argument under the illegality head. Mr Ho must show not only that the 1983 Acada and Fonda Guarantees are unenforceable, but also that there should be a set-off of the potential proceeds from the sale of the Indonesian Land against the Bank's claim under the 1996 Fonda Guarantee. The loan facility of $7,980,000.00 granted to Fonda in 1996 was indisputably exempted from the application of s. 29(1) of the Act. The 1996 Fonda Guarantee given in respect of such loan facility therefore cannot be illegal. Establishing invalidity of the 1983 Acada and Fonda Guarantees would not be enough for Mr Ho's purposes since that would leave extant the Bank's sizeable claim under the 1996 Fonda Guarantee. 60.Strictly, by its letter dated 18 November 1997 referred to above, the Bank required the creation of an equitable mortgage of the Indonesian Land as security for the total banking facilities lent to Acada, not Fonda. It is unclear on what basis Mr Ho asserts that the Bank can now exercise any security rights which it might have over the Indonesian Land to recoup Fonda's debts. 61.But assume that the Bank can exercise whatever rights it has over the Indonesian Land under Indonesian law (as the lex loci of the property) to reduce Fonda's debt. 62.The Bank's evidence is that, under Indonesian law, it has no effective equitable mortgage over the Indonesian Land. It thus has no power to sell the latter. The Applicants have not adduced any Indonesian law evidence to counter the Bank's statement. 63.Nonetheless, assume further in the Applicants' favour that the Bank holds an effective equitable mortgage in respect of the Indonesian Land. Even that would not help the Applicants' case. 64.Mr Ho says that the Court should take the Indonesian Land into account because of BR r. 48(5)(c), the Indonesian Land's putative value of $10,000,000.00 being in excess of the amount of US$7,980,000.00 claimed under the 1996 Fonda Guarantee. Mr Ho adds that, contrary to BR r. 44(5), the Indonesian Land has not been mentioned in the Statutory Demands as a security held by the Bank. 65.In Cheng Wai Kei v. Commerzbank Aktiengesellschaft [2002] 2 HKC 340, Chu J stated (at 346-7):-
66.The Indonesian land belongs to a 3rd party. It does not belong to the Applicants. It follows from Cheng Wai Kee that the BR impose no obligation on the Bank to mention the Indonesian Land in the Statutory Demands. There has been no contravention of BR r. 44(5). Nor is the Bank to be treated as a secured creditor as against the Applicants in relation to the Indonesian Land for the purposes of BR r. 48(5)(c). Where (as here) there are express provisions in the Guarantees (including the Fonda Guarantees) permitting the Bank to enforce claims against John Wang and Jeanny Lie without first enforcing the Bank's securities or remedies against any 3rd parties, the Bank is not bound in law to exhaust its claims against such 3rd parties before starting proceedings on the Fonda Guarantees. 67.Regardless of the merits of the illegality limb of Mr Ho's argument in connection with the 1983 Acada and Fonda Guarantees, I see no good reason on the available evidence why the Court should treat the Bank's claim against the Applicants under the 1996 Fonda Guarantee as extinguished by the alleged value of the Indonesian Land. 68.For the above reasons, in my judgment Mr Ho's illegality case is untenable in law and fact. 69.In my view, it was pointless to adjourn the substantive hearing of the Setting-Aside Applications pending a decision by the Court of Appeal on the Discovery Order. There seemed to be little merit in the appeal against Judge Poon given the evidential and legal problems with Mr Ho's argument which I have identified. I refused an adjournment. Mr Ho then applied on the spot to adjourn the substantive hearing of the applications to set aside the Statutory Demands pending an appeal against my refusal to adjourn. For the same reasons that I refused Mr Ho's 1st application to adjourn, I refused his 2nd. 70.Finally on illegality, I briefly mention 2 points. 71.First, Mr Ho suggested in the course of argument that, given Proposition X, Acada and Fonda should have a restitutionary claim for the return by the Bank of all interest paid by Acada and Fonda over the years in respect of monies loaned under the Acada and Fonda Facilities in the pre- March 1984 period. As guarantors of Acada and Fonda, the Applicants (Mr Ho submitted) should be allowed to raise that restitutionary claim against the Bank. The claim for repayment of interest is likely (Mr Ho suggested) to be sizeable and would probably exceed the Bank's demands under the 1996 Fonda Guarantee. There being no merit in the illegality argument, Mr Ho's restitutionary claim based on it must also fail. I note that, in any event, Mr Ho has not adduced any evidence of the existence of a restitutionary claim of the nature alleged by him under Singaporean law. 72.Second, I have taken it for granted in my analysis that the effect of a contravention under the Act is to render monies advanced to Acada and Fonda irrecoverable by the Bank under Singaporean Law. I should not be taken to have accepted that is in fact the case. What evidence there has been before me of Singaporean Law is to the effect that the Singapore Court proceeds in a similar way to a Hong Kong Court when considering the effect of illegality under a statute. It is necessary to examine whether or not the legislative intent behind the prohibition is to avoid contracts and bar restitution of any benefits conferred by one party to another under the illegal contract. At first impression, the purpose of s. 29 (1) of the Act would appear to be to prevent banks from over-extending themselves by imprudent lending. If so, it would be odd if a bank which had lent money in excess of the permissible percentage of capital funds, should be prevented from recovering by way of restitution any monies loaned. I do not understand why a borrower should get to keep all monies loaned to him and thereby obtain a windfall from the violation of a statute intended to protect a bank and its creditors. Nevertheless, it is unnecessary for me to consider this point since, even on the assumption that illegality implies unenforceability, it seems to me that the Applicants' illegality case has no substance. C. Undue Influence 73.Mr Ho accepted that, if the illegality claim failed, there would be no basis to set aside the 1st Statutory Demand against John Wang. It is not claimed that John Wang was the victim of undue influence by the Bank. By contrast, in respect of the 2nd and 3rd Statutory Demands against William Wang and Jeanny Lie respectively, Mr Ho contended that both were entitled to rely on a defence of undue influence in relation to the Guarantees signed by them. 74.Mr Ho's argument was that William Wang and Jeanny Lie signed the Guarantees sought to be enforced against them on the instructions of John Wang. John Wang did not explain the Guarantees' contents and their legal consequences to William Wang and Jeanny Lie before they signed. William Wang and Jeanny Lie merely signed because John Wang was the elder son of the Wang family and, in a traditional Chinese family such as theirs, it was incumbent on a younger brother and a wife to sign a document if so instructed by the elder son. 75.In his 1st Affirmation, William Wang denied ever signing any personal guarantee in favour of the Bank. He also stated there:-
76.When confronted with a copy of the 1996 Fonda Guarantee, he stated the following in his 2nd Affirmation:-
77.Jeanny Lie's 1st Affirmation put her case thus:-
78.As far as the different classes of undue influence identified in Barclays Bank Plc v. O'Brien [1994] 1 AC 180 are concerned, Mr Ho says that the undue influence alleged here falls within Class 2B. He says that this is a case where undue influence should be presumed because:-
79.Assume in favour of William Wang and Jeanny Lie that they reposed trust and confidence in John Wang. Assume as well that, when asking them to sign Guarantees, John Wang did not explain the contents of the documents and their legal consequences but simply told them to sign. That would still not be enough to set aside the 2nd and 3rd Statutory Demands. 80.This is because what is sought to be set aside is not a guarantee between William Wang or Jeanny Lie and John Wang, but a guarantee between William Wang or Jeanny Lie and the Bank. Something more has to be shown before it can be said that the Bank's conscience is affected and the Bank should not be allowed to enforce the Guarantees signed by William Wang and Jeanny Lie. There are typically 2 ways in which, as regards a 3rd party lender ("the 3rd Party Lender"), a surety can escape the consequences of a guarantee signed through the undue influence of a spouse or other wrongdoer ("the Influencer"). The surety can show that:-
See Bank of China (Hong Kong) Ltd v. Wong King Sing [2002] 1 HKLRD 358, at 374-7 (§§58-69). 81.On agency, Recorder Ma SC in Bank of China (Hong Kong) Ltd v. Wong King Sing at 376 (§63) stated:-
I do not think the evidence in this case establishes that John Wang acted as the Bank's agent in asking his wife and brother to sign the relevant Guarantees. 82.John Wang's evidence in his 1st Affirmation on the signing of the 1983 Acada and Fonda Guarantees is as follows:-
According to Acada's Annual Return for 2003 (see above), contrary to what John Wang deposes, his wife apparently remained as a director of Acada even after 1996. 83.In his 2nd Affirmation, John Wang says the following:-
84.The above evidence hardly goes to show that John Wang acted as the Bank's agent in requesting his wife and brother to sign the Guarantees. If anything, the material suggests that John Wang approached his wife and brother on behalf of the Companies. For example, John Wang frankly admits that it was important for the business of Acada and Fonda to obtain the Acada and Fonda Facilities. Thus, in asking his wife and brother to sign he would have been approaching them for the purposes of Acada and Fonda. This fact incidentally also indicates that William Wang and Jeanny Lie would probably have signed the Guarantees in any case, even if they had known what its true nature and effect was1. 85.That leaves the question whether the Bank was put on inquiry as to the possibility of undue influence being exerted by John Wang over William Wang and Jeanny Lie. Here Mr Ho's case was simply that the Bank was put on inquiry because it ought to have known that, in a traditional Chinese family such as the Wangs, a wife and younger brother would simply do as the elder brother instructed. To put it baldly, Mr Ho contends that the Bank should have been on notice of undue influence from the mere fact that the Wangs were Chinese. The proposition needs only to be stated for it to be seen as devoid of merit. 86.As far as the Bank was concerned, the Guarantees were signed by Jeanny Lie and William Wang in their capacities as directors of Acada or Fonda. There is nothing remarkable about directors signing guarantees to secure loans to companies of which they are directors. There is nothing inexplicable about Jeanny Lie or William Wang signing Guarantees for Acada or Fonda in the circumstances. Mr Ho argues that Jeanny Lie and William Wang were only nominee shareholders in Acada or Fonda and even then their holdings were small in comparison to the companies' total share capital. That may be the case. But there is no explanation how the Bank ought to have known that Jeanny Lie and William Wang were mere nominees for (say) John Wang. Nor is it clear why, regardless of whether they were or were not nominee or nominal shareholders, the Bank could not take their directorships of Acada or Fonda at face value2. 87.For the above reasons, there is no factual or legal substance in the alleged defence of undue influence. I add that, although the Applicants affirmation evidence hinted that the Applicants were also relying on a lack of understanding of the English language to mount a plea of "non est factum", Mr Ho did not pursue such plea before me. D. Miscellaneous 88.Mr Ho faintly suggested that I should nonetheless set aside the Statutory Demands under BR r. 48(5)(d) on the ground that the value of the Indonesian Land would offset the amount claimed under the 1996 Fonda Guarantee. Given my rejection of the illegality argument and my comments on the Indonesian Land as a relevant security, I do not think that it would be appropriate to set aside the Statutory Demands on this alternative basis. III Conclusion 89.There being no substance to the Applicants' submissions, I dismissed the Setting-Aside Applications. I also ordered that the Bank was to have the costs of the 3 Setting-Aside Applications. Finally, pursuant to BR r. 48 (7), I authorised the Bank to issue a bankruptcy petition after the expiry of 14 days from the date of my dismissal of the Setting-Aside Applications.
Representation: Mr B K Ho, instructed by Messrs Laurence Pang & Co., for the Applicants in HCSD 22/2003, HCSD 23/2003 and HCSD 24/2003 Mr Erik Shum, instructed by Messrs Ince & Co., for the Respondent in HCSD 22/2003, HCSD 23/2003 and HCSD 24/2003 1 Compare Bank of Ireland v. Bongard [2003] EWHC 612 (QB) where Wright J stated (at §13): "It has been common ground throughout this case that the burden of proof rests upon Mrs Bongard to establish on the balance of probabilities, first that she was the subject of undue influence by her husband in prevailing upon her to sign and execute the deed of guarantee of 28 October 2000, and secondly that the circumstances were such that she would not have signed the document if she had known what its true nature and effect was. In the circumstances, it is not necessary for me to grapple with the interesting and difficult conundrum as to whether the circumstances in which Mrs Bongard came to enter into a guarantee of her husband's Company's business debts were such as to put the Bank on enquiry and thus obliged to take reasonable steps to satisfy itself that she had understood and freely entered into this transaction." 2 Compare, on sibling relationships, Wing Hang Bank Ltd v. Crystal Jet International Ltd [2002] 3 HKC 279, where Deputy Judge Saunders held (at §65): "It is right that M L Ko and Winnie Ko are sisters. But both were directors and shareholders of Mazlo. As such it was plainly in both their interests that banking facilities were secured. In these circumstances it cannot be said that, on its face, the transaction was not to her financial advantage. There was nothing in the relationship of sisters, who are both working directors of the a company, to put the bank on enquiry that one director of the company might have exercised any particular influence over the other." Remarks: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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