Shun Kai Finance Co Ltd v. Wong Shun
Read the full judgment text of HCB 1166/2006 on BabelCite. This HCB judgment was delivered on 6 October 2006.
1. This was the hearing of a Creditor’s Bankruptcy Petition presented by Shun Kai Finance Company Limited. which is in liquidation, against Mr Wong Shun. The petition is based upon a debt which is in the principal amount of HK$4 million, plus interest thereon, which the Petitioner says is owed to it by the Debtor.
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HCB1166/2006 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE IN BANKRUPTCY NO. 1166 OF 2006 ____________________ BETWEEN
____________________ Before : Hon. Barma J in Court Date of Hearing : 6 October 2006 Date of Decision : 6 October 2006 ____________________ D E C I S I O N ____________________ 1.This was the hearing of a Creditor’s Bankruptcy Petition presented by Shun Kai Finance Company Limited. which is in liquidation, against Mr Wong Shun. The petition is based upon a debt which is in the principal amount of HK$4 million, plus interest thereon, which the Petitioner says is owed to it by the Debtor. 2.Prior to its liquidation, the Petitioner was a company carrying on the business of making loans. The Debtor was one of its directors. Its other main director was the Debtor’s wife, Ms Anna Yeung. The debt arises out of moneys which were lent by the Petitioner to the Debtor on two occasions. The first loan, of HK$3 million, was made on 3 March 1998, while the second, of HK$1 million, was made on 11 March 1998. Each of the loans was made pursuant to a written agreement which expressed itself to be a deed and provided for its sealing by both parties. In the event, for reasons that are not entirely clear, the document was sealed by the Debtor but not by the Petitioner whose corporate seal was never affixed to it. 3.The circumstances in which this came about are explained by Mr Wong in his second affirmation where he says that he was the person responsible for the preparation of the loan agreements, that having prepared the loan agreements and the documentation that was annexed to them, he went on to sign and seal the document himself, after which he took the document to his co-director, his wife, to have it signed by her on behalf of the company. Thereafter, it was taken to a third party for both parties’ signatures to be witnessed and the red wafer was placed on the document in proximity to where the signature was on behalf of the company. However, for some reason which is not explained, the company’s metal seal was not taken out and imprinted on the document. 4.It is, I think, common ground that the failure to emboss the company’s seal on the document means that the document has not been effectively executed as a deed by the company. The schedule to each of the loan agreements contained various terms as to the repayment of the loan. In particular, the Debtor was given the option to repay the loan, together with interest, either by 24 monthly instalments or by paying the principal, in full, on the due date which was two years from the date of the agreement, while paying interest on a current basis at monthly intervals. It is common ground that the Debtor did not opt to pay the loans in full on the due date. In consequence, he was obliged to repay the loans in 24 monthly instalments of principal and interest. The Debtor admits that he never made any repayment at all under the loans and, in consequence, the full amount of the loans, plus interest, remains unpaid. 5.The loans also contained a term whereby, on default in the payment of any single instalment, the Petitioner could declare the whole of the unpaid balance to be due and payable immediately. That is clause 7 and, in particular, the second subparagraph (a) in that clause. Notwithstanding the Debtor defaulted in making any repayment at all, the Petitioner never did declare the whole of the unpaid balance to be due and payable. This may have been because it was, at the material time, under the management and in the control of the Debtor. 6.The Petitioner went into liquidation on 5 November 2003. After it went into liquidation, a Statement of Affairs in relation to its affairs was prepared. That document was prepared on 1 September 2004 and it was signed by both the Debtor and his wife. The Statement of Affairs indicates that it is a statement of the affairs of the company as at 5 November 2003, the date of its liquidation, although in one other place in the document, there seems to have been an error and the date of 1 September was inserted, that being the date of the making of the Statement of Affairs. This being in the Statement of Affairs, the first page of which was also signed by the Debtor, sets out among the debts owed to the Petitioner, the amounts of HK$3 million and HK$1 million respectively, which are the subject of this petition. The page of the schedule on which those amounts are set out was also signed by the Debtor. 7.On 9 November 2004, the Petitioner’s Liquidator demanded repayment from the Debtor of the amounts outstanding, but no repayment was received. Eventually, on 9 December 2005, the Petitioner’s Liquidator caused a statutory demand for the amounts outstanding to be served on the Debtor, again with no result. As the Debtor has failed to make payment pursuant to the statutory demand, he is, pursuant to section 6A or B of the Bankruptcy Ordinance, deemed to be unable to pay his debts. Thereafter, the petition was issued on 17 February 2006. 8.The Debtor disputes his liability to pay the amounts on which the petition is based. He says that he is not obliged to repay the loans because the Petitioner’s claim on them is statute barred as the loans were made on 3 and 11 March 1998 respectively and the Debtor was already in default under them one month later, on 3 and 11 April 1998 respectively. The Debtor says that as the petition was not presented until more than six years after that date, the Petitioner’s claim for repayment was, by that point, statute barred by the provisions of section 4(1)(a) of the Limitation Ordinance, which provides that claims based on simple contract shall be barred after the expiry of six years from the date on which they accrue. 9.The Petitioner disputes this. Mr Pao who appears for it today, has submitted as follows. First, as the loan contracts were executed as deeds by the Debtor, the Petitioner’s claim against the Debtor is an action on a specialty to which the longer limitation of 12 years applies, pursuant to section 4(3) of the Limitation Ordinance. The Petitioner contends that the fact that the loan contracts were not executed as deeds on its own part is irrelevant for this purpose. 10.The Petitioner goes on to submit, however, that, secondly, if the fact that there was a defect in the execution of the contracts as deeds by itself is relevant, then the Petitioner submits that the Debtor is estopped from denying that the contracts were executed as deeds because it is clear, says the Petitioner, that the documents were intended to be executed as deeds and it would be inequitable to allow the Debtor now to take advantage of its own failure to ensure that the Petitioner’s seal was affixed to the documents, when nothing had been made of this point in the eight years between the making of the loans and the issue of the petition. The Petitioner says that it relied on the statement that the documents were executed as deeds by advancing the loans to the Debtor, who had received them and could not now resile from the position that the loan agreements were, as between himself and the Petitioner, deeds under seal. 11.Third, even if the loan agreements are not to be treated as deeds as against the Debtor, the Debtor has, by submitting the Statement of Affairs which he has signed, acknowledged his liability to the Petitioner within the terms of section 23(3) of the Limitation Ordinance so that time began to run afresh as from the date of that acknowledgement, which was less than six years prior to the presentation of the petition. 12.A fourth argument put forward by the Petitioner is that, on the true construction of the loan agreement, in particular clause 7(a) thereof, the Debtor’s liability to repay only accrued on 11 September 2004 when the Petitioner sent written notice to the Debtor demanding repayment. But - five - even if the Debtor’s liability accrued on his default in making repayment in respect of any particular instalment, in respect of that instalment, the cause of an action for the entire sum did not accrue on the date of the first defaults in repayment, which were 3 and 11 April 1998, but rather accrued on default in relation to each particular instalment on the date on which there was a default in making payment in respect of it. 13.On this analysis, says the Petitioner, the claim in respect of the final two instalments of each loan did not accrue until 3 and 11 March 2000 respectively, which was within the limitation period of six years. As to this, each of these instalments were themselves in excess of the statutory minimum for the presentation of a petition, of HK$10,000, the instalment in relation to the larger loan being some, I think, $140,000, and the last instalment in relation to the loan of $1 million being somewhere in excess of HK$40,000, giving a total of some HK$180,000-odd for which there was a debt which was, on any view, not statute barred. 14.For the purpose of this judgment, I propose to deal first with the question of acknowledgement by the Debtor of his liability to the Petitioner, as the conclusion to which I have come on this point is determinative of these proceedings. 15.The Debtor submits that the Statement of Affairs does not amount to an acknowledgement of his liability to the Petitioner within the meaning of section 23(3) of the Ordinance because it was not a statement made by him in his personal capacity, but one made by him on behalf of the Petitioner as its director, or former director. It was submitted that an acknowledgement for the purposes of section 23 must be made by or on behalf of the Debtor and not by or on behalf of the Creditor. In the course of the argument this morning, a further point emerged, arising out of the apparent error in the body of the Statement of Affairs, that it represented a true Statement of Affairs of the Petitioner Company as at 1 September 2004, the date on which it was made. 16.Sir John Swaine, who appeared for the Debtor, correctly pointed out that the actual date by reference to which the Statement of Affairs was given was in fact the date of the Petitioner going into liquidation, which was 5 November 2003. It was submitted, I think, that the mismatch between the date as at which the Statement of Affairs was given and the actual date on which it was given in some way took what might otherwise have been an acknowledgement out of the scope of section 23 of the Ordinance. 17.Section 23 of the Limitation Ordinance, so far as material, is in the following terms: “The relevant provision is, I think, section 23(3) which provides that:
There is then a proviso which is not relevant for present purposes. 18.Section 25 of the Ordinance is also of relevance in this context; in particular, subsection (5) of that section which reads as follows:
19.Subsection (6) deals with payments made in respect of any debt or other liquidated pecuniary claims and that subsection provides that such a payment shall bind all persons liable in respect thereof, but there is a proviso that such a payment made after the expiration of the period of limitation shall not bind any person other than the person making the payment and his successors. 20.In my view, the suggestion that the Statement of Affairs is not made in Mr Wong’s personal capacity but only in his capacity as a director, or former director, of the Petitioner and therefore amounts to an acknowledgement of the existence of the claim by the Petitioner, rather than as an acknowledgement of the debt by Mr Wong, is an argument which is flawed. It seems to me that in signing the Statement of Affairs, Mr Wong clearly acted in his personal capacity and cannot be regarded as having made the Statement of Affairs on behalf of the Petitioner. The affirmation of truth at page 3 of the Statement of Affairs states simply that it is made by the Debtor and Ms Yeung. It does not suggest that it was made on behalf of the Petitioner. Nor is it suggested elsewhere in the document on the many pages at which the Debtor’s signature appears, that he signs in any capacity other than his personal capacity and, in particular, there is no suggestion that he signs on behalf of the Petitioner. 21.Quite apart from these matters, an examination of the purpose of a Statement of Affairs and the nature of the obligation to provide one to the Liquidator of a company in liquidation makes it clear, in my mind, that the obligation to provide a Statement of Affairs is one that is personal to the former directors of the company so that, in making it, they are acting for themselves and discharging their obligations under the Companies Ordinance and are not acting on behalf of the company in liquidation. 22.As Mr Pao pointed out in the course of his submissions, the purpose of a Statement of Affairs is to enable a liquidator to obtain information as to the company’s assets and liabilities from the persons who are most likely to be in a position to provide that information. It provides a summary account of the financial status and affairs of the company so as to facilitate the liquidator in carrying on his duties in connection with the company’s liquidation. It is therefore necessarily a personal statement by the relevant persons made to the liquidators of the company, based on their own personal knowledge and opinion. 23.Section 190(2) of the Companies Ordinance provides that the Statement of Affairs shall be submitted and verified by one or more of the persons who are, at the relevant date, being the date of the liquidation of the company, the directors of the company and/or by the person who is, at that date, the secretary of the company. Subsection (5) of section 190 provides for a fine against any person who fails to comply with that requirement without reasonable excuse. Subsection (5)(a) states that the Statement of Affairs may be used in evidence against any person making or concurring in the making of the statement. All of these provisions, to my mind, clearly indicate that the Statement of Affairs is a personal statement by a former director or officer of the company in liquidation as to the company’s assets and liabilities. 24.Moreover, at the time when the debt was acknowledged, the Debtor was no longer a director of the Petitioner. It is well-established that, on the appointment of a liquidator to a company when it goes into liquidation, or indeed, on the earlier appointment of a provisional liquidator, the directors are ousted from office and they have no longer any role to play in the management of the company or its affairs and their authority to act on behalf of the company ceases. That being so, it seems to me that on the Petitioner having gone into liquidation, Mr Wong was no longer, thereafter, a director of the company with authority to bind it in any way. 25.Given that that is the case, it does not seem to me possible to say that the statement made by him in the Statement of Affairs can be said to be a statement made by him for or on behalf of the company for which he had no longer any authority to act. That being so, it seems to me that it is quite clear that in making a Statement of Affairs and making the statements contained in it, Mr Wong was acting in his personal capacity pursuant to the obligations imposed on him in his personal capacity by the provisions of section 190 of the Companies Ordinance. 26.In this case, the Statement of Affairs clearly contained a statement by Mr Wong that he was indebted to the Petitioner in the sums indicated and being signed by him would, I think, amount to an acknowledgement of his liability to the Petitioner. The question then arises whether or not the mismatch between the date of the making of the Statement of Affairs and the date as at which the acknowledgement was given makes any difference. To my mind it does not. It seems to me that what is important for the purpose of section 23(3) is that there should be an acknowledgement that an amount or a debt exists and is owing from the Debtor to the Petitioner, or to the Creditor, at some particular date. Ordinarily, it may well be the case that the acknowledgement will be effective as of the date on which it is made. In this case, because of the fact that the company is in liquidation and the acknowledgement is contained in the Statement of Affairs, there is a difference between the date on which the statement is made and the date by reference to which the debt is acknowledged. 27.In those circumstances, it seems to me that the effect of the signature on the Statement of Affairs is that Mr Wong has acknowledged his liability to the company as at the date of its liquidation. That being so, a fresh cause of action accrues, or the time starts to run afresh, for the purpose of the Limitation Ordinance, from the effective date of that acknowledgement. In this case, the acknowledgement being of his indebtedness to the company as at 5 November 2003, it seems to me that time began to run afresh as against Mr Wong as from 5 November 2003. 28.Even if that is not right and time would be deemed to begin to run as of 1 September 2004, this would not assist Mr Wong since that would be a date that was closer in time to the date on which the petition was presented. It is not necessary consider the permutation that would arise as to the position if the acknowledgement had been on 1 September 2004. But even if the acknowledgement had been as at 1 September 2004, by which point it may well have been the case that the claims in respect of the number of the instalments of the loan that had been unpaid may have been statute barred. It seems to me that under the Hong Kong Limitation Ordinance, the effect of an acknowledgement, even after the expiry of the relevant limitation period, is to revive the cause of action in its entirety, notwithstanding that the limitation period has already expired. This is, I think, necessarily the implication to be derived from the proviso to section 25(5) of the Ordinance and 25(6) of the Ordinance. 29.In those circumstances, it seems to me that the debt is clearly one which is not statute barred. It is therefore, strictly speaking, unnecessary to consider whether the claim by the Petitioner against the Debtor is a claim on a specialty and so subject to the 12-year limitation period, or a claim on a simple contract and so subject to the six-year limitation period. However, as full submissions have been made on this point, I shall express my views on it briefly. 30.Mr Pao submitted that even if the loan agreements were not executed by the Petitioner as deeds, they were clearly executed as deeds by the Debtor and that, in those circumstances, the obligation of the Debtor arose under a specialty and attracted the 12-year limitation period pursuant to section 4(3) of the Limitation Ordinance, whereas the liability of the Petitioner, such as it was, might be under a simple contract subject to the six-year limitation period. Mr Pao submitted that, in the circumstances of this case, this could cause no injustice whatsoever to the Debtor since the Petitioner had already advanced the money to the Debtor. On the contrary, he submitted that there would be injustice to the Petitioner if this were not the position, since the Petitioner must have proceeded on the basis that the contracts were intended to be contracts made by way of deed under seal, and that it was only due to the failure on the part of the Debtor or his wife that the Petitioner had failed to seal the contracts properly. 31.Mr Pao relied in particular on the dicta of Judge Thornton QC in the case of OTV Birwelco Limited v Technical and General Guarantee Company Limited [2002] 4 All ELR 668. In that case, the Plaintiff, OTV, sought to enforce a performance bond against the guarantor, Technical and General. OTV was the main contractor in a construction project in respect of whose subcontractor a performance bond had been provided by Technical and General. The performance bond was properly sealed by Technical and General but was not, it seems, properly sealed, or sealed strictly in accordance with the relevant provisions of the applicable legislation by the subcontractor, in that the subcontractor had affixed on the document a seal that did not contain its registered name, but the name under which it carried on business, or its trade name. There was therefore a defect in the sealing of the document by the subcontractor. There was, however, no defect in the sealing of the document by Technical and General who were giving the performance guarantee. 32.The court held in that case that it was open to OTV to sue Technical and General on the performance bond as a contract under seal and, therefore, as a deed, notwithstanding the defect in the execution by the other party to the deed; that is, the subcontractor. In his judgment, Judge Thornton QC said, at paragraph 11, that:
that is the subcontractor -
33.Sir John suggested that this statement and a statement to similar effect later in the judgment was mere obiter dicta. Whether or not that is the case, it seems to me that it is soundly based in principle. That statement of principle is, in my view, in accordance with the principles as stated in other authorities, including Halsbury’s Laws of England, 4th edition, volume 13 at paragraph 61, and in the decision of the House of Lords in Lady Mays v Westminster Bank(?) [1940] AC 366. Halsbury’s Laws of England said this:
In the Lady Mays case, Lord Russell made the following observations at page 391, where he said:
34.From these authorities I derive the proposition that where one party has executed a document as a deed, it may be enforced against him as such, subject to the exception which arises in the case of documents executed in escrow, or whether the consequence of non-execution by some other party gives rise to an equity against the enforcement of the document against him as a deed because it alters the nature of the obligation which the executing party has undertaken, as would be the case where only one of several intended co-sureties executes a deed under which they become sureties. 35.In this case, it seems to me that no such equity can arise. The Debtor’s obligations are no different as a result of the Petitioner’s failure to execute as a deed from those which they would have been had it been executed as a deed by the Petitioner. Further, if necessary, I have no doubt that the court would hold that, by affirming the deed in having sued upon it, the Petitioner has thereby affirmed the document as a deed for his own part and, if it should become relevant, the Debtor would likewise have been entitled to enforce it as a deed against the Petitioner who would be estopped from denying that it was a deed so far as he was concerned. But as I have observed, in this case, the Petitioner had in fact already performed its obligations, so no question of having to enforce the agreement against the Petitioner as a deed, or at all, arises here. 36.Moreover, I do not think that there is anything particularly unusual or startling in such a result. As other authorities show, a unilateral promise under seal can be enforced, notwithstanding the absence of consideration, or notwithstanding that such consideration as might have existed is past consideration. It therefore seems to me that there is nothing in principle that prevents promises under the contract being split up and enforced, one as a deed, one not, with the different consequences that attach to that situation. 37.Against this, Sir John Swaine has sought to argue that the contract should not be enforced against the Debtor as a deed because it would be inequitable to do so as he executed the document as a deed under the misapprehension that it would be executed as a deed by the Petitioner also. Since the document was not executed as a deed, or not validly executed as a deed by the Petitioner, the circumstances in which the Debtor executed it were circumstances under which he operated under the effect of a mistake and since, says Sir John, the mistake was mutual, the Petitioner is left with a claim for money had and received or is, alternatively, estopped from relying on the document as a deed against the Debtor. 38.I see no merit in that argument and, as I have pointed out, the merits appear to me to be entirely the other way. The fact is that by relying on the document as a deed against the Debtor, the Petitioner had affirmed its nature as a deed and, if necessary, would itself have been estopped from denying that it too had executed the document as a deed. And as I have said, that position does not arise in this case, but I think this would have been the result had it, at this point, arisen for consideration. 39.Sir John also argued that section 4(3) of the Limitation Ordinance does not apply in this case. I think he suggested, first, that because half of the contract is under seal and half is not in the sense that one party had executed it as a deed but the other had not, the consequence is that the contract as a whole should be regarded as a simple contract for limitation purposes. 40.With respect, there is no authority put forward for such a proposition and it is contrary to the observations of Judge Thornton QC in the OTV Birwelco case and, in my view, the proposition is not one that is well-founded. I also consider the suggestion that the case falls within the proviso to section 4(3) of the Ordinance, that some other limitation period is provided in respect of this claim, is an argument which cannot succeed. It seems to me that the cases which have been cited in support of that proposition as cases from which the point can be made by analogy are not true analogies in that, in each of those cases, there was, in fact, a separate provision within the Limitation Act in that case which has its equivalent in the Limitation Ordinance in Hong Kong, which provided for a different period of limitation, notwithstanding that the agreement was one under seal. 41.The two cases in question are Romaine v Guba TV Limited(?) [1997] QB 887, which was a decision relating to recovery of rent. In that respect, notwithstanding that the document was under seal, section 19 of the Limitation Act 1980 provided for a six-year time limit similar to that provided by section 18 of our Limitation Ordinance. The other authority, Central Electricity Generating Board v Halifax Corporation [1962] 3 All ER 915 dealt with section 2(1)(d) of the Limitation Act of 1939 which provided specifically for a six-year limitation period in relation to claims for recoveries under statute which is comparable to Hong Kong’s section 4(1)(d). I do not think that the existence of section 4(1)(a) provides a different limitation period in relation to actions under specialty. Section 4(1)(a) relates to simple contracts for which the shorter limitation period of six years is provided. 42.In this case, as I have held, the liability of Mr Wong under the relevant contracts was a liability under specialty. The liability as against him does not arise from simple contract and, therefore, no other limitation period prescribed within the Ordinance so as to bring the proviso under section 4(3) into effect. For both of those reasons therefore, I would come to the view that Mr Wong has failed to show that there is any bona fide dispute of substance in relation to liability to pay the Petitioner under the agreements. 43.As to the other points that were argued, I do not propose to express any final view of them. It certainly is not necessary for me to express any final view as to Mr Pao’s submission that Mr Wong would himself have been estopped from denying that the document was a deed as between himself and the Petitioner. 44.So far as the other argument is concerned, I would indicate only that, as I indicated in the course of argument, I am not persuaded that the effect of clause 7(a) is to render the claim under the loan agreements one which only arises and only accrues on the making of a demand. It seems to me that the effect of that clause is to provide for an option on the part of the lender to accelerate the entire liability under contract in the event of default. That does not have the effect of taking away the right to immediately sue in respect of any unpaid instalment as and when that particular instalment is not paid on its due date. It therefore seems to me that the Petitioner’s right to claim in respect of each unpaid instalment arose on the date on which default was made and that the consequences that, but for the fact that the contract was, in my view, one under which Mr Wong’s obligations are enforceable against him as a specialty and in any event are obligations which he has acknowledged, the position would have been that all but the last instalment under each of the loans would have been statute barred by the date that the petition was presented. 45.As to whether or not, in the circumstances, it would have been right to make a bankruptcy order, given that the amount of those two instalments nonetheless exceeded the statutory minimum for the presentation of a petition, I do not propose to base my decision on that particular point, save to say that it seems to me that there may well be considerable merit in the Petitioner’s position that, notwithstanding the irregularity, if such it be, in the statutory demand, it would still be open to the Petitioner to rely on the statutory demand and the failure of Mr Wong to pay as justifying the making of a bankruptcy order against him. 46.However, for the reasons that I have given in relation to the question of whether or not the debt had been acknowledged by Mr Wong and in relation to the question of whether or not his liability is under a specialty, I am satisfied that Mr Wong has failed to raise any bona fide dispute of substance in relation to his liability to pay the Petitioner under the agreements. In consequence, as he has failed to comply with the statutory demand, he is deemed to be unable to pay his debts and I therefore propose to make the usual bankruptcy order with costs against Mr Wong.
Mr Jin Pao, instructed by Messrs Jones Day, for the Petitioner Mr John Swaine, SC, instructed by Messrs Tsang, Chan & Woo, for the Respondent Official Receiver, attendance excused |
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