Re Au-yang Lam Lai Ming, Sabrina

HCB000297/1984

IN THE HIGH COURT OF JUSTICE

HONG KONG

(IN BANKRUPTCY)

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Coram: Hon. Jones J. in Chambers

Date of hearing: 13th July 1988

Date of handing down judgment: 26th July 1988

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JUDGMENT

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1. This is an appeal by the Standard Chartered Bank Hong Kong Trustee Limited, the administrator of the estate of Madam Lau Sui Ling (the deceased) who died on the 8th October 1985 to reverse a decision of the Official Receiver rejecting a proof of debt for the sum of $6,000,000 together with interest. I shall refer to the appellant in this judgment as the administrator.

2. By her will executed on the 29th August 1966, the deceased appointed four of her children including Stephen Lam and Sabrina Lam (Sabrina) to be the executors and trustees of her will. Under her will, she bequeathed the residue of her estate in eight equal shares to her children. Two of the shares were bequeathed to Sabrina and one to Stephen Lam. One of the executors pre-deceased the deceased.

3. On the 23rd September 1974, the deceased appointed Stephen Lam and Sabrina to be her attorneys. On the 19th May 1982, a Declaration of Trust was executed in favour of the deceased by Cititrust (Cayman) Limited (Cititrust) by which the beneficiary of the income from the trust was to be the deceased during her life time and upon her death the trust was to terminate with the capital and income of the trust to be paid to her estate.

4. A receiving order was made against Sabrina on the 26th September 1984 and she was adjudicated bankrupt on the 1st November 1984. Sabrina also filed a voluntary petition in bankruptcy in the United States where she now lives on the 11th September 1984 but it appears that she has not been formally adjudicated bankrupt in that jurisdiction.

5. After the death of the deceased, the three remaining executors instructed the administrator to carry out the administration of the deceased's estate the provisional net value of which for estate duty purposes has been assessed at about $38,000,000. The administrator obtained Letters of Administration with the Will annexed on the 9th February 1987.

6. The circumstances surrounding the present appeal relate to an alleged loan by the deceased to Sabrina of $6,000,000 made in November 1982. The loan was effected by a withdrawal made on the instructions of Stephen Lam and Sabrina from a deposit with Cititrust that matured on the 26th November 1982. However, instead of the sum being paid direct to Sabrina, it was paid into the account of Bylamson & Associates International Ltd., Burmuda, with Bylamson & Associates (HK) Ltd. with the Hang Seng Rank Ltd. in Hong Kong. The Bylamson companies were private companies run by the Lam family. A receipt, signed by Sabrina, which is also dated the 26th November 1982, acknowledged receipt of this sum from Bylamson & Associates International Ltd., Burmuda as a sum advanced to her and stating that it would be repayable upon demand. On the 26th May 1983, Bylamson & Associates International Ltd., Burmuda wrote to Sabrina claiming interest payments on the loan of $6,000,000 as from the commencement of the loan in the sum of $322,273.97 based upon rates of interest varying from 10.5% per annum to 13.5%, per annum for that period. One of the signatories to this letter was Stephen Lam.

7. Having regard to the bankruptcy of Sabrina, the administrator sought directions from the court in its administrative capacity under O.85, r.2 of the Rules of the Supreme Court as to whether the first interim distribution from the estate could be retained as against the Official Receiver. Liu, J. held in a ruling delivered on the 26th

8. April 1988 that it could not be retained and should be paid to the Official Receiver. However, he also held that it had been established that there was prima facie evidence that Sabrina was indebted to the deceased's estate.

9. After the directions sought from Liu J. had been given, the administrator submitted a proof of debt with the Official Receiver against the estate of Sabrina in which iv was claimed that the money was advanced by Bylamson as agent for the deceased to Sabrina and was repayable upon demand. The claim was supported by the letter from Stephen Lam and Sabrina to Cititrust dated the 26th November 1982, the receipt signed by Sabrina of the same date described as a promissory note, and the letter from Bylamson to Sabrina dated the 26th May 1983 claiming interest. The Official Receiver rejected the proof of debt on the grounds that the agency between the deceased and Bylamson & Associates International Limited had not been proved, that the promissory note dated the 26th November 1982 was invalid and the debt was not proved.

10. In this appeal, no evidence was given by Sabrina but reference was made to testimony that she had given in the bankruptcy proceedings in the United' States where, in answer to a question as to whether she had received a loan from the deceased, she pleaded the Fifth Amendment, thereby refusing to give evidence which may tend to incriminate her. However, she went on to say that she had received a sum of $6,000,000 from Bylamson but again claimed the Fifth Amendment as to when this sum was received.

11. Stephen Lam gave evidence that Sabrina had informed him that the deceased had made a loan to her of $6,000,000. He claimed that the loan had been made to her by means of the Bylamson companies so that all the beneficiaries would be aware of this fact. He explained that the absence of documents to support the loan was because it was done by way of an internal transfer so that the monies never, in fact, left Hong Kong. With regard to the latter claiming interest, he said that such interest would have been paid to the deceased, but in fact, no payments were ever made. He was not aware of the identity of the person who had decided upon the quantum of interest to be paid. Mr Lam agreed that he did not verify the loan with the deceased despite the fact that he was one of her attorneys. Until quite recently Mr Lam had not even mentioned to the administrator the existence of a loan from the deceased to Sabrina.

12. Another son of the deceased Mr Rogerio Lam did not give evidence, but Mr godson in his affidavit made on behalf of the administrator, states that Mr Lam had asserted that the advance of $6,000,000 from the deceased to Sabrina by means of the company's account was a mere conduit and had been dealt with in this manner for tax purposes. Mr Rogerio Lam gave evidence in the proceedings before Liu J. that there was a risk of death duty being imposed on the amount of the loan if it was not repaid in time. Mr Rogerio Lam wrote to the solicitors for the administrator on the 24th March 1987, to the effect that according to Stephen Lam, who was in charge of the matter for Bylamson, the arrangement was carried out under the specific direction of the deceased and that the Burmdda company acted in the capacity of agent so it would not upset the previous overseas deposit arrangement with Cititrust. As the company had acted as the agent for the deceased, no loan agreement was prepared for the deceased did not have an account with the company. Mr R. Lam regarded the loan as a one-off transaction. He confirmed that the company was willing to assign all the rights with regard to the loan to the estate of the deceased.

13. When the receipt was submitted to the Official Receiver by the administrator, it was described as a promissory note but it is clear, having regard to the provisions of section 89(1) of the Bills of Exchange Ordinance that there is no reference to the money being repayable on a fixed or determinable date in the future to or to the order of a specified person or to bearer. Indeed Miss Yuen did not seriously pursue this aspect but relied upon the fact that it amounted to a receipt for the money.

14. Apart from the evidence given by Stephen Lam that Sabrina had been granted a loan by the deceased, there was no evidence to support the administrator's contention that such a loan had been made. Sabrina did not testify in these proceedings whilst she refused to inform the United States Bankruptcy Court as to whether a loan had been made to her by the deceased. All the documentary evidence shows that if a loan was made it was made by Bylamson, Burmuda to Sabrina. That evidence was wholly inconsistent with the administrator's argument that loan had been made by the deceased. Even if there had been any merit in this argument, there could be no conceivable reason for the interest to be paid as claimed by Bylamson. Stephen Lam could provide no plausible reason for the demand and agreed that the matter of interest had never been mentioned by Sabrina. The explanation for the circuitous route from the deceased to Sabrina on the grounds that it eras for tax purposes or would, in some way, affect the overseas deposit arrangements with Cititrust was neither credible nor had it any evidential basis upon the facts.

15. Stephen Lam who was the only witness who gave viva voce evidence was most unimpressive. His mere acceptance that a loan had been made by the deceased to Sabrina without verification was unconvincing, particularly, as be was a joint attorney. Again, it is most unlikely that he would have delayed until recently to inform the administrator of the facts of the loan if he had been a witness of truth. The reason that he gave for the loan being made by means of the Bylamson companies was to acquaint the beneficiaries with knowledge of the loan was apart from being purely speculative, quite ludicrous. I have no hesitation in rejecting his evidence and find as a fact that Sabrina never informed him that a loan had been made to her by the deceased.

16. There was no evidence that Bylamson acted as agent for the deceased nor from Sabrina as I have said, that she borrowed the money from her mother. I am therefore satisfied that the Official Receiver was wholly justified in rejecting the proof of debt.

17. Accordingly, the appeal is dismissed. There will be an order nisi for costs to the Official Receiver.

Representation:

Miss Maria Yuen (Philip K.H. Wong & Co.) for Appellant.

Mr Kevin Lewis for the Respondent.