Re Tsang Hing Wong

HCB 7696/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 7696 OF 2012

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Re: TSANG HING WONG

Ex Parte: STANDARD CHARTERED BANK (HONG KONG) LIMITED, a Creditor

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J U D G M E N T

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I. INTRODUCTION

1.The bankruptcy petition was presented by Standard Chartered Bank (Hong Kong) Limited against Mr Tsang Hing Wong (“Debtor”) on 20 November 2012 based on the statutory demand issued on 23 August 2012. The Debtor opposes the petition.

2.The statutory demand sought payment of sums due on 6 August 2012, ie HK$125,549.89 and JPY14,074,354.00 of which the principal sums were HK$124,513.14 and JPY14,001,052.00 and the interest amounts were HK$1,036.75 and JPY73,302.00.

3.By the petition, the petitioner claimed that the Debtor was justly and truly indebted to the petitioner in the sums of HK$125,549.89 and JPY14,074,354.00 (or its equivalent in Hong Kong dollars) together with interest on the principal sum of HK$124,513.14 at the rate of 9.5% pa over the petitioner’s Hong Kong dollars prime rate and on the principal sum of JPY14,001,052.00 at the rate of 7.75% pa over the petitioner’s cost of funds both from 24 August 2012 until payment (“Debt”). 

4.The petition was verified by the affidavit of Leung Yee Chun (Head of Hong Kong, Group Special Assets Management of the petitioner) dated 20 November 2012.  There is no issue regarding the service of the statutory demand and the petition since both have been personally served on the Debtor. 

5.The Debtor filed an affirmation on 28 January 2013 (“Debtor’s 1^st Aff”) which exhibited his letter dated 27 January 2013 to the court that raised queries about the Debt.

6.At the hearing of the petition on 4 February 2013, Au J granted leave for the Debtor to file/serve affirmation in opposition within 21 days and for the petitioner to file/serve affirmation in reply (if any) within 14 days thereafter.  Au J further directed that no further affirmation be filed or relied on without leave of the court. 

7.On 25 February 2013, the Debtor filed his affirmation in opposition (“Debtor’s 2^nd Aff”).  On 13 March 2013, the petitioner filed the supplemental affirmation of Li Siu Chi Steven (Assistant Account Manager, Group Special Assets Management of the petitioner, “Mr Li”) in reply to the Debtor’s 1^st and 2^nd Aff (“Li’s Supp Aff”).

8.At the adjourned hearing of the petition on 25 March 2013 before Ng J, the Debtor submitted an undated letter to the court (“Debtor’s Letter”).  The learned judge further adjourned the hearing of the petition to 16 April 2013. 

9.On 8 April 2013, the petitioner issued an inter partes summons for leave to file and rely on Mr Li’s 2^nd supplemental affirmation (“Li’s 2^nd Supp Aff”) dated 8 April 2013 (“Summons”).  This affirmation was made in response to the Debtor’s Letter, which raised matters concerning deposits in the Hong Kong dollars current account of Everpower Ind (HK) Company Limited (“Everpower”) with the petitioner (“Current A/C”).  Mr Li explained that upon reviewing the bank records in respect of the Current A/C, there was a need to explain how and when the deposits in the Current A/C were set-off against debts owed by Everpower and/or the Debtor to the petitioner.

10.On 9 April 2013, the Debtor without leave of the court also filed/served a further affirmation (“Debtor’s 3^rd Aff”).

11.At the hearing of the petition on 16 April 2013, I arranged for a court translator to translate the contents of Li’s 2^nd Supp Aff to the Debtor in punti language.  Thereafter, without objection by the Debtor and Mr Wong, counsel for the petitioner, I granted leave for the petitioner and the Debtor to respectively file and rely on Li’s 2^nd Supp Aff and the Debtor’s 3^rd Aff with costs in the cause of the proceedings.

12.The principal basis of the Debtor’s opposition to the petition is that there are bona fide disputes on substantial grounds as to the debt upon which the petition was premised given that (a) the interest rate charged by the petitioner was unjustified, and (b) the credit balance of the Current A/C of more than HK$2,000,000.00 would sufficiently cover the Debt.  The Debtor also complained that despite requests he had not received any detailed breakdown of the indebtedness owed by Everpower and by him.

II.   LEGAL PRINCIPLES

13.A bona fide dispute as to the existence of the debt must be more than trivial or insubstantial, and must be based on solid grounds disputable both in law and on the facts of the case.  The test of bona fide dispute in company winding up cases was set out in Re ICS Computer Distribution Ltd as follows:[1]

“Importantly for this case there is a distinction between a consideration of whether the company has established a defence on substantial grounds and a consideration of whether the evidence is believable. Taken to the ultimate, the difference is between whether there is evidence and whether that evidence is believable. It seems to me that the onus must be on the company against which a petition is presented to adduce sufficiently precise factual evidence to satisfy the court that it has a bona fide dispute on substantial grounds. This seems to me to be the proper approach which emerges both from the cases where the petition has been struck out and those for example as the Great Britain Mutual Life to which I have referred and the Janeash Ltd [1990] BCC 250. In that case Browne-Wilkinson, V.-C. said at 252 “That huge weight of material has remained unanswered”. He went on to doubt the truth of such material as had been put in by the company, but that does not, in my view, detract from the basic point that the company’s evidence must establish a substantial case. If the evidence fails to establish that case the company cannot satisfy the test by arguing hypotheses of fact on which it is said that such a case exists or could exist.”

14.It is therefore incumbent on the Debtor to put forward “sufficiently precise factual evidence” to substantiate his allegations. On such basis, the court will have to go further to consider whether the evidence so put forward is believable.[2] In this respect, the court must view such evidence “not with a wholly uncritical eye” and to see whether it is obviously a “put-up job”.[3]

15.Au J in Re Ip Pui Man Nina[4] said at pp.318-319 as follows:[5]

“67. This is a higher standard than that required of a defendant in resisting an application for summary judgment under O.14 of the Rules of the High Court (Cap.4A, Sub.Leg.). The burden is on the debtor to show not only that his case is believable but also that there is precise factual evidence in support of his case, which is not just mere assertions. The Court will look at the debtor’s evidence against so much of the background and incontrovertible evidence that is not disputed or not capable of being disputed. An honest belief on the part of the debtor that he has a substantial ground of defence is not sufficient to avoid a bankruptcy order: Re Malcolm Westley Casselle (unrep., HCB 1698/2010, [2011] HKEC 326) para.24 (Anthony To J).”

16.Further, an overstatement of the indebtedness in the statutory demand will not automatically entitle the debtor to have the demand set aside.  The relevant question is whether injustice would be caused to the debtor by allowing the particular demand to stand.[6]

III.   BACKGROUND FACTS

17.There is no dispute that the Debtor conducted business through his company Everpower, and that Everpower applied to the petitioner for banking facilities. 

18.By a facility letter dated 7 May 2008 (“1^st Facility Letter”), the petitioner granted a set of banking facilities, including general banking facilities (trade finance and current account overdraft), to Everpower as borrower.  The trade finance facilities were subject to a total facility limit of HK$4,000,000.00, and the current account overdraft limit was (HK$300,000.00).

19.The 1^st Facility Letter provided that interest on the trade finance facilities would be calculated as follows:

“HKD import facilities: At the Bank’s standard bills finance rate.

Japanese Yen import facilities: 1.25% per annum over the Bank’s cost of funds.

Foreign currency (except Japanese Yen) import facilities: 2.25% per annum over the Bank’s cost of funds.”

20.The 1^st Facility Letter further provided as follows:

“G. OTHER TERMS AND CONDITIONS

1. The Facilities are available at the sole discretion of the Bank. The Bank may at any time immediately terminate, cancel or suspend the Facilities or otherwise modify the Facilities without the consent of any party.

2. Notwithstanding any provisions stated in this letter, the Facilities are repayable on demand by the Bank. The Bank has the overriding right at any time to require immediate payment and/or cash collateralisation of all or any sums actually or contingently owing to it under the Facilities.

3. The Bank’s Standard Terms and Conditions for Banking Facilities and Services (including the Trade Finance Supplement) and Terms and Conditions for Foreign Exchange Business (“Standard Terms and Conditions”) attached and/or referred to in this letter forms an integral part of this letter and the Customer agrees to observe and be bound by such Standard Terms and Conditions.

…”

21.In the Trade Finance Supplement attached and referred to in the 1^st Facility Letter (“TFS”), clause 12(e) provided that Everpower as the customer represented and undertook to the petitioner:

“it shall pay default interest on any sum due but unpaid by the Customer in connection with the trade finance facilities at the rate of 5% per annum above the interest rate charged on the trade finance facilities provided to the Customer or at such other rate stipulated by the Bank in the Facility Letter (if any); ……”

22.Clause 11.1 of the petitioner’s Standard Terms and Conditions for Banking Facilities and Services (“STC”) provided as follows:

“The Bank may, at any time and without notice, combine or consolidate all the Customer’s accounts (where sole or joint), with the Bank, SCB, the holding company or subsidiaries or associated companies of SCB and apply ant credit balance (whether matured or not) to which the Customer is entitled in or towards satisfaction of any obligation (whether or not matured, actual, future, contingent, unliquidated or unascertained) owed by the Customer to the Bank or SCB, regardless of the currency, the places of payment or the office through which the Bank is acting.”

23.The 1^st Facility Letter was accepted and signed by the Debtor on behalf of Everpower agreeing and accepting all the terms and conditions therein as well as the petitioner’s STC and TFS, and also as guarantor acknowledging the terms and conditions therein and confirming his obligations under the guarantee (see paragraph 25 below).

24.The 1^st Facility Letter was subsequently varied by two supplemental facility letters from the petitioner to Everpower dated 24 October 2008 and 4 March 2009 respectively (“2^nd and 3^rd Facility Letters”).  The banking facilities granted by the petitioner to Everpower under the 1^st, 2^nd and 3^rd Facility Letters are collectively referred to as the “Facilities”.

25.By a guarantee dated 2 June 2008 (“Guarantee”), the Debtor as guarantor guaranteed to the petitioner to pay and discharge all moneys then or thereafter advanced to or paid for or on account of Everpower and all other liabilities of Everpower to the petitioner including inter alia interest thereon from the date of demand until full payment (both before as well as after judgment) at the rate of 1.5% above the rate at which Everpower would have been liable to pay, provided that the amount for which the Debtor shall be liable thereunder shall not exceed HK$4,500,000.00 (see clause 1(a)-(b) of the Guarantee).

26.On 3 April 2009, the petitioner by letter to Everpower terminated the Facilities and demanded repayment of the then due sums owed by Everpower to the petitioner “together with interest accruing thereon at the default rate (subject to fluctuation from time to time) from 2 April 2009 until payment”.  On the same day, the petitioner informed the Debtor by letter that they had terminated the Facilities as a result of Everpower’s failure to pay their then indebtedness due to the petitioner when it fell due, and demanded repayment of the then due sums “together with interest accruing thereon at the default rate (subject to fluctuation from time to time) from 2 April 2009 until payment” from the Debtor as guarantor under the Guarantee.

27.The default rate referred to in these two letters was inter alia the default rate of 5% pa above the interest rate charged on the trade finance facilities provided to Everpower under clause 12 of the TFS as attached and referred to in the 1^st Facility Letter.

28.The then indebtedness under demand was unpaid.  On 3 June 2011, the petitioner wrote to Everpower (marked for the attention of the Debtor) to again demand repayment.  Such letter noted that Everpower failed to comply with the petitioner’s request for a repayment proposal, and demanded Everpower to pay the indebtedness as at 2 June 2011 of JPY34,893,065.00 (outstanding principal) and JPY14,869.00 (accrued interest) “together with interest accruing thereon at the default rate (subject to fluctuation from time to time) from 3 June 2011 until payment”.  The petitioner also reserved the right to exercise their right of set-off in accordance with clause 11.1 of the STC without notice to Everpower.

IV.   OUTSTANDING PRINCIPAL SUM

29.According to the petitioner, the principal amount that Everpower failed to pay as borrower and which the Debtor as guarantor was obliged to pay were Japanese yen import facilities advanced by the petitioner to Everpower under deal no.378-04-0285505 (“1^st Deal”) in the sum of JPY10,060,000.00 and deal no.378-04-0292310 (“2^nd Deal”) in the sum of JPY6,531,000.00 on 8 January and 9 February 2009 respectively. 

30.Everpower made two part payments in the sums of JPY2,439,982.00 (26 August 2011) and JPY149,966.00 (2 May 2012) to the petitioner for the sum advanced under the 1^st Deal, but the amount due under the 2^nd Deal remained wholly unpaid.  After the two part payments, the principal sums under the 1^st and 2^nd Deals due and owing from Everpower to the petitioner were JPY7,470,052.00 (1^st Deal) and JPY6,531,000.00 (2^nd Deal), totalling JPY14,001,052.00 being the outstanding principal sum specified in the statutory demand and petition.

31.The petitioner said that the sum of HK$124,513.14, which was also stated as principal in the statutory demand and petition, was the interest accrued on the principal sum of JPY14,001,052.00 but subsequently capitalised as principal (and entered in the amount of Hong Kong dollars).

32.The plaintiff claimed that despite the demands in paragraphs 26 and 28 above, Everpower and the Debtor still failed to repay the outstanding principal sum of JPY14,001,052.00, and as at the date of the petition the Debtor was still indebted to the petitioner for the same.

33.Mr Wong submits that irrespective of the Debtor’s assertions in respect of the rate for interest chargeable on the outstanding indebtedness, the Debtor never disputed that he owed the petitioner the outstanding principal sum of JPY14,001,052.00 under the Guarantee. 

34.However, the Debtor by his affirmations queried the calculation of the indebtedness.  In the Debtor’s 2^nd Aff, he admitted that he owed the petitioner a sum of JYP34,893,065.00, but claimed he and/or Everpower had deposited a total sum of HK$4,471,716.06 in the Current A/C by 31 March 2011.

35.In my view, the Debtor’s admission that he owed the petitioner a sum of JYP34,893,065.00 is in line with the petitioner’s case that the principal indebtedness due and owing to the petitioner as at 2 June 2011 was such sum (see paragraph 28 above).  In respect of the Debtor’s allegation of deposits in the total sum of HK$4,471,716.06 in the Current A/C, even according to Everpower’s transactions by account statement in respect of the Current A/C as disclosed by the Debtor, as at 31 March 2011 there were total deposits in the sum of HK$4,471,716.06 and total deductions in the sum of HK$2,293,989.36 leaving a credit balance of HK$2,177,726.70.  In fact, this is entirely consistent with the petitioner’s case as evident from the bank statement in respect of the Current A/C as disclosed by the petitioner which showed a credit balance of HK$2,179,773.37 as at 31 March 2011.  In my view, the Debtor’s assertions in paragraph 34 above fail to take into account the matters set out in paragraphs 43-44 below, and there is no valid basis for challenging the outstanding principal sum of JPY14,001,052.00 in respect of the Debt. 

V.   CURRENT A/C

36.The Debtor denied he owed the petitioner any indebtedness (including the capitalised interest in the sum of HK$124,513.14) since the Current A/C all along had a credit balance of more than HK$2,000,000.00.  He claimed that on 17 April 2009 the petitioner told him his time deposit would be transferred to the Current A/C, and that the petitioner did not allow Everpower to use those monies in the Current A/C, hence the credit balance should be available to settle or reduce the Debt.

37.The petitioner explained that apart from the Facilities, Everpower had four bank accounts with the petitioner, ie the Current A/C, HK$ time deposit account, HK$ savings account (“Savings A/C”) and US$ savings account (“US$ A/C”).

38.Pursuant to Everpower’s written instructions dated 3 April 2009 to the petitioner, the sum of HK$1,432,027.93 was transferred from the Savings A/C to the Current A/C for settlement of Everpower’s overdraft and trade finance facilities granted by the petitioner.  After such transfer, the overdraft debit balance in the Current A/C of HK$29,172.01 was paid, leaving a credit balance of HK$1,402,855.92 in the Current A/C as at 6 April 2009. 

39.In line with what the Debtor said in paragraph 36 above, pursuant to Everpower’s written instructions dated 1 April 2009 to the petitioner, Everpower’s time deposit in the sum of HK$1,609,686.17 was uplifted on 17 April 2009 and transferred to the Current A/C on the same day to settle Everpower’s outstanding trade finance facilities with the petitioner.  As shown in the April 2009 bank statement, the closing credit balance in the Current A/C was HK$2,978,916.09 on 30 April 2009. 

40.Thereafter, during the period from May to July 2009, only one sum of HK$600,000.00 was paid into the Current A/C on 17 July 2009.  The remaining credit balance in the Current A/C was pending Everpower’s instruction for bills settlement.

41.On 4 and 13 August 2009, the amounts due under three trade bills were settled in the respective sums of HK$875,541.20, HK$90,058.88 and HK$752,466.21, thus leaving a credit balance of HK$1,938,980.78 as of 31 August 2009.  During the subsequent period from September 2009 to July 2011, Everpower made monthly repayments into the Current A/C.  The remaining credit balance of the Current A/C, after netting the monthly bills interest, was pending Everpower’s instruction for bills settlement.  As of 30 July 2011, the credit balance of the Current A/C was HK$2,121,076.98. 

42.The above matters are all evidenced by the bank statements of the Current A/C for the corresponding periods exhibited to Li’s 2^nd Supp Aff.  The Debtor is therefore right in saying that as at 30 July 2011 there was a credit balance in excess of HK$2,000,000.00 in the Current A/C.

43.However, as Everpower and/or the Debtor failed to repay Everpower’s debt, the petitioner informed Everpower by a letter dated 23 August 2011 that should they fail to revert on their repayment on 25 August 1011 the petitioner would (without further notice) exercise their right of set-off.  On 30 August 2011, the petitioner exercised their right to set-off Everpower’s credit balance in the Current A/C under clause 11 of the STC, and debited the Current A/C in the sum of HK$2,121,076.93 for repayment of the amount due under the trade bills of the same amount (equivalent to JPY20,833,475.00), ie JPY2,439,982.00 (equivalent to HK$248,417.01) being the principal sum under the 1^st Deal, and JPY18,302,065.00 (equivalent to HK$1,863,351.54) being the principal sum and JPY91,428.00 (equivalent to HK$9,308.38) being the interest sum under the 2^nd Deal.  This is evidenced by two Retirement of Import Bill Advices issued by the petitioner to Everpower both dated 30 August 2011.

44.After the aforesaid set-off on 30 August 2011, the credit balance of the Current A/C was HK$0.50 with continued debit of the monthly bill interest.  As evidenced by the banks statements from August to December 2011, the Current A/C sustained a debit all along.  The bank statement for November 2012 showed that on 20 November 2012 (ie the date of issuance of the petition against the Debtor), there was no credit balance remaining in the Current A/C.

45.According to the bank statement of the US$ A/C dated 24 September 2011, a sum of HK$1,620.15 being Everpower’s overdraft facility was set-off against the credit balance of US$208.40 in the US$ A/C on 7 September 2011.  Therefore, by 8 September 2011, there was no longer any credit balance in any of Everpower’s bank accounts with the petitioner whilst there was still unpaid outstanding indebtedness due and owing to the petitioner by Everpower and/or the Debtor.

46.Given the clear documentary evidence disclosed by the petitioner, I hold there was/is no available credit balance in the Current A/C for reducing or settling the Debt.  The same had already been validly set-off and taken into account in the calculation of the Debt.  The petitioner’s right of set-off was expressly provided for in the STC being part of the terms and conditions binding on Everpower and also on the Debtor as guarantor of Everpower’s indebtedness under the Guarantee.

VI.   INTEREST

47.The Debtor complained that the petitioner hiked the rate of interest payable on the outstanding indebtedness from about 2.6569% to about 8.5% on 5 May 2009, but the difference of about 5.8431% was unjustified. In the Debtor’s 3^rd Aff, he claimed that the petitioner wrongfully added over 4% pa to the interest rate.  In his oral submissions, the Debtor complained that the petitioner committed fraud by removing the collateral or security support for the Facilities as a result of uplifting Everpower’s time deposit on 17 April 2009 to provide justification for charging interest at a high rate.

48.However, Li’s Supp Aff explained that the increase in interest rate from around 2.6% to around 8.5% in about May/June 2009 was due to the operation of (a) clause 12 of the TFS and (b) the fluctuation of the petitioner’s cost of funds.  Full breakdown of the interest payable in respect of the sums advanced under the 1^st and 2^nd Deals was exhibited to Li’s Supp Aff.  As seen in the breakdown for the 1^st Deal for the period from 8 January 2009 to 28 February 2013, the petitioner started to charge Everpower interest at the default rate from 5 May 2009, ie after Everpower’s default in repayment.  As seen in the breakdown for the 2^nd Deal for the period from 9 February 2009 to 28 February 2013, the petitioner started to charge Everpower interest at the default rate from 8 June 2009, ie after Everpower’s default in repayment.

49.In my view, there is no valid basis for the Debtor to dispute the rate of interest.  Clause 12 of the TFS, which formed an integral part of the terms and conditions binding on Everpower and hence on the Debtor as guarantor under the Guarantee, empowered the petitioner to charge default interest on any sum due but unpaid by Everpower in connection with the trade finance facilities at the rate of 5% pa above the interest rate charged on such facilities provided to Everpower (see paragraph 21 above).  In the circumstances, the difference of about 5.8431% pa noted by the Debtor would be justified on the basis of clause 12 of the TFS and also by the fluctuation over the petitioner’s cost of funds under the primary interest rate (see paragraphs 19 and 21 above).  Further, I do not agree that the petitioner committed any fraud on Everpower and/or the Debtor.  After all, pursuant to clause 11 of the STC, the petitioner had a right of set-off which they exercised (see paragraphs 22 and 43 above).

VII.   OTHER MATTERS

50.In the Debtor’s 3^rd Aff, the Debtor said Japanese yen exchange rate had to be fixed before 10:00am each day, but initially the petitioner fixed the exchange rate at any time between 9am to 4pm during weekdays which increased the risk of exchange rate fluctuation for Everpower. I am unable to see how this assertion raises any arguable or believable challenge to the Debtor’s liability to pay the Debt.

51.The Debtor said that with the recent devaluation of Japanese yen, there was greater demand for Japanese cars, and Everpower’s previous suppliers/customers indicated interest in further business cooperation.  He claimed to have received some purchase orders over the Chinese New Year period and to have liaised with suppliers who were supportive of Everpower’s continued trading.  In my view, these assertions fall far short of establishing a reasonable prospect of being able to pay the Debt.

VIII.   CONCLUSION

52.I reject all the grounds of opposition raised by the Debtor.  I therefore make a bankruptcy order against the Debtor.  I also grant a costs order nisi that the petitioner’s costs including all costs reserved are to be paid out of the bankrupt’s estate.

53.My clerk will inform the Debtor that if he so requires a court translator will be arranged to verbally translate this Judgment into the punti language for him at the High Court Building at a mutually convenient date and time.

Mr Adrian Wong, instructed by Tsang Chan & Wong for the petitioner

The debtor acting in person, present

The Official Receiver, excused from attendance