Edward Wong & Co Ltd v. The Official Receiver
Read the full judgment text of HCB 1/1977 on BabelCite. This HCB judgment.
1. This is an application by Edward Wong & Co., Ltd. (hereinafter referred to as the creditor) for a declaration that the creditor is entitled to the proceeds of sale of certain equipments and machineries listed in the Bill of Sale dated 6th January, 1977 and executed by one MA Tak-jing (hereinafter referred to as the debtor) and for an order that the Official Receiver pay the sum of $500,000 or the proceeds of sale of the said machines or equipments, whichever is less, with damages and/or inter
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HCB000001/1977 IN THE SUPREME COURT OF HONG KONG HIGH COURT ----------------- IN BANKRUPTCY No.1 of 1977 -----------------
----------------- Coram: LI, J. Date of Judgment: 19th December, 1977 at 3.05 p.m. ----------------- JUDGMENT ----------------- 1. This is an application by Edward Wong & Co., Ltd. (hereinafter referred to as the creditor) for a declaration that the creditor is entitled to the proceeds of sale of certain equipments and machineries listed in the Bill of Sale dated 6th January, 1977 and executed by one MA Tak-jing (hereinafter referred to as the debtor) and for an order that the Official Receiver pay the sum of $500,000 or the proceeds of sale of the said machines or equipments, whichever is less, with damages and/or interest. The facts giving rise to this application are as follows. 2. One MA Tak-jing, the debtor, the proprietor of Universal Garment Factory mortgaged certain landed properties valued at a million dollars to secure overdraft facilities given to him by the Dao Heng Bank. By mid-1975 the debtor was asked by the Dao Heng Bank to reduce the amount then outstanding. As a result a Bill of Sale, exhibited in MA Tak-jing's affidavit as MTJ-l, was executed to secure a further $200,000 in favour of the Dao Heng Bank on the 26th of June, 1975. 3. The creditor had been the debtor's customer on garment business for some time by way of placing orders for garments and making advance payments in respect of such orders. By 1976 the debtor was in dire financial difficulties because the Dao Heng Bank was pressing for payment and threatening the issue of a writ. At that time the debtor not only had difficulty of re-paying the debt but also had difficulty with cash flow. By the 16th of September, 1976 the debtor had owed the Dao Heng Bank the total sum of $1,189,214.35. 4. Negotiations then went on between the creditor and the debtor. As a result, some time in September, October last year or up to November, it was agreed between the creditor and the debtor that the creditor would use his good office to persuade the Chartered Bank to take over the Dao Heng Bank mortgage at the value of $1,000,000. Further, the creditor would pay the Dao Heng Bank the balance of $189,214.35 on behalf of the debtor. The debtor agreed to execute a Bill of Sale, when the Bill of Sale in favour of Dao Heng Bank was released as a result of this transfer of mortgage and payment of the balance by the creditor, in favour of the creditor or another bank. The money advanced by the creditor, namely, the $189,214.35, was to be re-paid by instalments in a period of over three years. In fact certain cheques had been paid in favour of the creditor from time to time. As to the advance by the Chartered Bank, it was further secured by the Chartered Bank, it was further secured by two post-dated cheques given to the creditor by two of the debtor's friends. 5. Pausing at this stage, I may observe that the landed properties belonging to the debtor was valued only at a million dollars. The mortgage that was taken over by the Chartered Bank was up to the brim a million dollars. Therefore, there was no safety margin. There was correspondence between the Chartered Bank and the creditor to the effect that they, the Bank, took over the mortgage solely on the recommendation and by persuasion of the creditor. The tenor of the letter was such that the Bank would look to the creditor to honour his, at least, moral obligation as to the security of such a mortgage. That was the event that took place some time last year. In the meanwhile, the debtor, even at that time, had owned the creditor a sum of something reaching approximately one-and-a-half million dollars. 6. Acting on such an agreement, the creditor had been pressing the debtor to execute the Bill of Sale in his favour after the Bill of Sale in favour of Dao Heng Bank had been released. However, the debtor had his own way of thoughts. He kept on refusing the creditor until he was in further financial difficulty by mid-December 1976. At that time he could not pay his rent and there was a threatened Warrant of Distress. He successfully negotiated with his landlord and such action was deferred. But he still could not pay the wages for his workers. He negotiated or continued his negotiation with one Mr. LUK of the creditor for a further loan in consideration of executing a Bill of Sale which the creditor had been pressing him - MA - to do so. Mr. Luk refused further advances and the debtor persisted in refusing to execute the Bill of Sale. The workers carried on till the end of December although they were not paid the first quarter of the December wages. It was only early January 1977 that the debtor realized he could not see his way through. He had a further and final negotiation with Mr. LUK of the creditor about a further loan. There is evidence that Mr. LUK refused a further loan but persisted that the debtor should execute the Bill of Sale which was executed in favour of the creditor on the 6th January 1977. Then on the 8th of January 1977 there was a petition against the debtor for a receiving order. A few days later the Official Receiver was appointed Interim and by the 10th of February, 1977 a receiving order was made and on the 5th of March the adjudication the debtor was adjudicated bankrupt. In the meanwhile, acting in his capacity as liquidator, the Official Receiver had seized all the equipment and machines belonging to the debtor in his factory. By agreement the machines and equipments were sold, pending an application by the creditor for the proceeds of sale. Hence this application. 7. Learned counsel on behalf of the Official Receiver attacked the Bill of Sale in four ways: First, he says that at the time when the Bill of Sale was executed in January 1977 Mr. LUK, who was a director of the creditor, had notice of an act of bankruptcy committed by the debtor. Secondly, the execution of the Bill of Sale in the circumstances amounted to fraudulent preference of one creditor. Thirdly, that the Bill of Sale was invalid in that it included certain items which may be regarded as choses in action, and fourthly that the Bill of Sale is invalid because there had been an invalid attestation, or rather the bill in favour of Dao Heng Bank was invalid for an invalid attestation. Learned counsel for the Official Receiver concedes that, if the bill in favour of Dao Heng Bank had been valid then because the creditor had paid his was to have the Bill of Sale released by the Dao Heng Bank, he should be able to step into the shoes of the Dao Heng Bank and obtain payment up to the extent of the debt that he has advanced to re-pay Dao Heng Bank, namely, the $189,214.35. 8. Mr. Mumford, learned counsel for the creditor, contends that, first of all, there was no notice of any act of bankruptcy at the time when the bill was executed. Secondly, that on the circumstances of the case there was certainly no question for no intention of committing a fraudulent preference. Thirdly, that the bill dated the 6th of January was valid on the ground that there was no inclusion of any chose in action and fourthly, that there had been valid attestation as for as the Dao Heng Bank Bill of Sale is concerned. 9. I will take the last two points first. 10. The attack on the Bill of Sale as including certain choses in action is only as valid on a cursory glance at the Bill of Sale. The four items that had been alleged to constitute choses inaction may be explained and interpreted as such. I accept the arguments by Mr. Mumford that even though a receipt is a piece of paper, it may be regarded as property. The fact that it is evidence of a chose in action is neither here nor there. As the second two items viz "decoration fee paid" or "lighting installations paid", they need out be choses in action. My interpretation will be that of decorations and lightings which may or may not merge with the premises. I give it the liberal interpretation of being tenant's fittings. The word "paid" merely indicated they had all been paid for. For this reason, the ground that the bill is invalid because it includes choses in action fails. 11. As to the question of the bill being invalid for no address being given to the person who attested it, I must confess that I am in some slight difficulty. In the present case the person who attested the signature of the grantor vis-a-vis the Bill of Sale in favour of the Dao Heng Bank only signed his name and described himself as "Solicitor, Hong Kong". It is contended by Mr. Wei that that is not sufficient indication of his address on the face of the document and as such the Bill of Sale by itself must be ruled invalid. This is in line with the decision of Parsons v. Brand (1) and also a decision given in chambers by my brother McMullin in O.J.Action No. 682 of 1971. In these cases it was ruled that any deficient description or address of the attesting witness will be fatal to a Bill of Sale. However, there is another case by the Court of Appeal in England, namely the case of Bird v. Davey (2) where a description of the attesting witness to the effect as "Solicitor, Romford" was held to be sufficient particular given to the attesting witness. 12. Having considered the cases cited to me and having regard to the fact that the case of Parsons v. Brand (1) was considered in the case of Davey, I come to the conclusion that, had the case of Bird v. Davey (2) been cited to my brother McMullin, he might have decided the other may. The description of "Solicitor, Hong Kong" is very similar to the description, "Solicitor, Romford" and that ppiint, i.e. the lack of description, was not even signed in the case of Bird v. Davey (2) wasn't even argued. It was taken for granted that it was sufficient description. For this reason I say that the attack on the Bill of Sale in favour of the Dao Heng Bank on the ground of invalid attestation must also fail. 13. I now come to consider the question whether Mr. LUK or the creditor had notice of an act of bankruptcy when the Bill of Sale dated 6th January was executed. It will be observed that the debtor may be described as an extremely dishonest person. He had already agreed with Mr. LUK of the creditor to execute a Bill of Sale in its favour if the arrangement for the transfer of the mortgage would go through and that the creditor waned pay for the balance of his indebtedness on his behalf to Dao Heng Bank. After the Dao Heng Bank released the Bill of Sale and he persisted in holding it and refusing to execute it in favour of the creditor. At the same time Mr. LUK of the creditor was foolish enough to allow him to go on like this until January 1977. By late December 1976 it was obvious that the debtor was not it a position to pay for his rent, wages and other creditors, In view of this, it will be impossible to say that the creditor had no notice of the inability of the debtor to pay his way and to say that the creditor had no notice of the debtor committing an act of bankruptcy. To this, I follow the judgment in the cases of Crook v. Morley (3) and re A Debtor (4), in which an oral information that the debtor was unable to pay his debts and had the necessity of suspending payment was held sufficient to constitute notice to the creditor of his act of bankruptcy. The creditor in the present case had notice of such act of bankruptcy not only once but at least three times - first, the inability to pay rent, secondly, the inability to pay wages throughout December 1976 to early January 1977, and thirdly the inability on the part of the debtor to honour a dishonoured cheque that was paid on his behalf by two of his friends. 14. Section 50(1) of the Bankruptcy Ordinance provides that,
It is submitted by Mr. Mumford that the assignment of the Bill of Sale was executed for valuable consideration. If I can find any valuable consideration at all, it would have been completely past consideration by the 6th of January. Indeed, the creditor had paid the Dao Heng Bank on behalf of the debtor in October, November 1976. The execution on the 6the of January was not in consideration of such payment. I will come to that a bit later. Further, 50(1) contains a proviso the document is valid only if it complies with two conditions one of which reads:
Even if it were transferred for valuable consideration, as I find as a fact that the creditor in this case had notice of an act of bankruptcy committed by the debtor on or before the 6th of January, this Bill of Sale must be invalidated. That is sufficient to say that the application to obtain the proceeds fails on this ground. 15. I will now come to the question of fraudulent preference. As I understand the proposition of law, agreed by both counsel for the parties, any compulsory execution of Bill of Sale may not be regarded as fraudulent preference of one creditor. However, a uoluntary execution of a Bill of Sale any be regarded as fraudulent preference, having regard to the circumstances under with the Bill of Sale was executed. Here was come to the affidavit of both the creditor ad the debtor. By his affidavit filed on the 5th of October, 1977 in paragraph 16 the debtor said,
meaning the creditor -
As far as the debtor is concerned he signed the Bill of Sale for that reason and for that reason alone. 16. As to the circumstances given by Mr. LUK of the creditor, it is to be found in paragraph 17 of his affidavit filed on the 24th of November, 1977 in which he said,
This paragraph, in my opinion, is a contradiction in terms. Whereas Mr. LUK said that in paragraph 16 of Mr. Ma's affidavit - that is the one I have just read - 'he does not say that his hope that if he executed the Bill of Sale he could remain in business was communicated to or agreed to by the company', there was no question of having any hope because in the next breath Mr. LUK said, "I certainly made no promises in this respect." From these facts and from the surrounding circum- stances under which he executed the Bill of Sale on the 6th January, I come firmly to the conclusion that it was the intention originally of the debtor to take advantage of the creditor. Having been able to foil the pressure to sing the Bill of Sale so far up to December, the debtor was attempting to make use of his equipment and machinery to execute a Bill of Sale in favour of a third party so that he could raise some more funds and at the same time be able to stall the creditor and abuse the confidence, trust and goodwill to him. He failed, and in the eleventh hour, seeing that either his equipment would have to be seized and sold for the general benefit of all the creditors anyway, or he could quickly execute a Bill of Sale in favour of the creditor so as to redeem the wrong that he has done Mr. LUK and the creditor, he then resolved to execute the Bill of Sale. It was in that circumstances that the Bill was executed. To my mind it must be ruled as an attempt to commit an act of fraudulent preference on the part of the debtor. In this connection I would I like to emphasize that the creditor is in not way to blame. He is a victim of the whole circumstances, owing to his trust and confidence and goodwill being abused by the debtor. For these reasons, I rule that the Bill dated 6thJanuary, 1977 is invalid and the application for the proceeds under that Bill of Sale must fail. 17. However, I have heard counsel on the point whether the payment for the release of the Dao Heng Bank Bill of Sale would entitle the creditor to part of the proceeds to the extent of the re-payment to Dao Heng Bank. Mr. Wei concedes on the authorities of the case of re James (5) that if the creditor had paid the Dao Heng Bank in order to secure the release of that Bill of Sale executed on the 25th June, 1976, the creditor would be able to receive the benefit on that Bill of Sale if that Bill of Sale were valid to the extent of the re-payment, namely, the sum of $189,214.35. I have found that that sum had been paid to the Dao Heng Bank to secure the release of the Bill of Sale. I have already decided that the attestation is not invalid for want of an address of the attesting witness. For these reasons, I hold that the creditor is entitled to the extant from the proceeds of sale up to the sum of $189,214.35. 18. Now there is the question of costs. The order would be that the applicant is entitled to the sum of $189,214.35 or the proceeds of sale, whichever is less; costs to be paid out of the assets of the estate in priority to payment of debts; interest to be paid 8 per cent per annum as from the date of sale up to today. Representation: (1) (1980 25 Q.B.C. 110) (2) (1891 1 Q.B.D. 29) (3) (1891 A.C. 316) (4) (1929 1 Ch. 373) (5) (1874 19 Eq. 253) |