HCB 3433/2005
[2024] HKCFI 2889
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
BANKRUPTCY PROCEEDINGS NO 3433 OF 2005
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| Re: | Zhan Xianming (詹向明), the Bankrupt | |
and |
| Re: | Gracewood International Limited
(佳豪國際有限公司), Interested Person | |
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| Coram: | Deputy High Court Judge MC Law, SC in Court |
| Date of Hearing: | 11-12, 30 September 2024 |
| Date of Decision: | 23 October 2024 |
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D E C I S I O N
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A. The Annulment Summons
1. On 6 May 2005, a bankruptcy order (“Bankruptcy Order”) was made against Zhan Xianming (詹向明) (“Zhan”) in his absence upon the bankruptcy petition (“Petition”) presented by the Petitioner, Bank of China (Hong Kong) Limited (the “Petitioner”).
2. On 2 August 2022, Gracewood International Limited (“Gracewood”) took out a summons (“Annulment Summons”) for the annulment of the Bankruptcy Order. The Annulment Summons was scheduled to be heard before me from 11 September 2024 (with 3 days reserved) (the “Hearing”).
3. One month before the Hearing, Zhan took out a summons dated 8 August 2024 (“VCF Summons”) for leave that he be able to attend the Hearing by video-conferencing facilities (“VCF”). The VCF Summons was opposed by Gracewood. The Petitioner and the Official Receiver were neutral to the VCF Summons and their attendance was excused. At the hearing of the VCF Summons on 9 September 2024, I dismissed the VCF’s Summons. My reasons for dismissing Zhan’s VCF Summons are set out in another decision handed down on the same day as this Decision (i.e. [2024] HKCFI 2890).
B. Factual background
4. For the purpose of the Annulment Summons, the salient facts may be summarized as follows.
5. Gracewood was at all material times and is still a company incorporated in Hong Kong, engaging in the business as a wholesale distributor of petroleum and petroleum products.
6. Zhan was at the material times the president, majority shareholder and legal representative of Guangdong Universal Group (廣東星球集團有限公司) (“Universal Group”), a trader in the bulk trading of liquefied petroleum gas in South China; and also a director of Guangdong Province Huaguang Light Industrial Co Ltd (廣東省華廣輕工實業有限公司) (“Huaguang”). It is Gracewood’s case that Huaguang and Universal Group owed to Gracewood a total sum of about US$16,626,816.86 (“Debt”) by 27 May 2002 under certain undertakings and guarantees.
7. On 27 May 2002, Zhan signed a personal guarantee in Chinese (the “Guarantee”) in favour of Gracewood guaranteeing the Debt. However, Universal Group and Huaguang defaulted and failed to discharge the Debt. Zhan could not be located by Gracewood since about June 2002.
8. On the other hand, on 6 May 2005, the Petitioner presented the Petition against Zhan. On 6 July 2005, the Bankruptcy Order was made against Zhan in his absence.
9. According to the report of the Official Receivers dated 19 October 2022, Zhan was considered automatically discharged from bankruptcy on 6 July 2009.[1] It is Zhan’s case that his liability under the Guarantee was released as a result of his being discharged from bankruptcy.
10. In 2021, through investigation conducted by a private investigator, Gracewood knew for the first time that Zhan had been residing in New Zealand since about 2002. Therefore, Gracewood commenced legal proceedings against Zhan on 12 April 2022 in Hong Kong for repayment of the Debt pursuant to the Guarantee in HCA 335/2022 (the “High Court Action”).
11. At about the same time, Gracewood also started proceedings in New Zealand for, inter alia, freezing injunction against Zhan and his ex-wife, Tina (Hongjun) Yang (“Yang”), in aid of its claims in the High Court Action.
12. On 2 August 2022, Gracewood took out the Annulment Summons in these proceedings pursuant to s33(1)(a) and 33(6) of the Bankruptcy Ordinance (Cap. 6) (“BO”). In summary, it is Gracewood’s case that the Bankruptcy Order ought not to have been made, as the conditions giving rise to the court’s jurisdiction under s4 BO were not met. Both the Petitioner and the Official Receiver adopted neutral position and their attendance was excused.
13. On 22 August 2022, Zhan took out a summons in the High Court Action to strike out Gracewood’s claims, alternatively for a determination of a preliminary issue as to whether the Debt has been discharged as a result of the discharge of the bankruptcy.
14. By consent of the parties, the High Court Action was stayed pending the determination of Gracewood’s Annulment Summons.
15. According to the report of the Official Receiver dated 19 October 2022 filed in these proceedings:-
(1) Zhan maintained bank accounts with HSBC. Such accounts had since been closed, with the balance in the sum of HK$52,023.41 realized by the Official Receiver as trustee and recovered to the bankruptcy estate.
(2) Throughout the administration of the bankruptcy estate, only one proof of debt was filed by the Petitioner, claiming a sum of HK$18,175,664.81, of which HK$18,134,934.81 was admitted.
(3) Zhan was untraceable all along since the making of the Bankruptcy Order. No statement of affairs or annual statement of earnings and property acquired was submitted. According to the record obtained from the Director of Immigration on 8 September 2005[2], Zhan left Hong Kong on 13 November 1998 without any record of return up to the date of the search.
16. In opposing the Annulment Summons, Zhan had filed his affirmations together with the Affirmation of Gang Gordon Chen (“Chen”). In summary, Zhan’s case is that Gracewood was not an “interested person” within the meaning of s33(6) BO, when its claim under the Guarantee was already time-barred. Zhan further submitted that the conditions set out in s4 BO were satisfied, given he was domiciled in Hong Kong; and/or that he had a place of residence in Hong Kong / had carried on business in Hong Kong in the period of 3 years prior to the date on which the Petition was presented.
17. On 22 February 2023, Ng J made an order by consent that, should leave be granted to Gracewood to annul the Bankruptcy Order pursuant to s33(6) BO, the deponents do attend the Court for cross-examination, failing which their affirmations shall not be admissible.
18. On 21 November 2023, Deputy High Court Judge H. Au-Yeung (as he then was) handed down decision and made an order granting leave to Gracewood to apply for annulment of the Bankruptcy Order. His Lordship also ordered that the deponents including Zhan and Chen do attend this Hearing for cross-examination, failing which their affirmations shall not be admitted as evidence.
19. Only one month before the Hearing, Zhan belatedly took out the VCF Summons on 8 August 2024. This was opposed by Gracewood. The Petitioner and the Official Receivers again adopted a neutral position.
20. On 29 August 2024, Zhan’s solicitors wrote to this Court, indicating that Chen will not attend the Hearing for cross-examination.
21. On 9 September 2024, I heard the parties’ substantive arguments on the VCF Summons. At the hearing, I dismissed Zhan’s VCF Summons, with reasons to be handed down later. My reasons for decision are handed down at the same time as this decision.
22. On 9 September 2024, shortly after the conclusion of the hearing of the VCF Summons, Zhan’s solicitors wrote to the Court again, stating that Zhan would not attend the Hearing without giving any reasons.
C. Synopsis of the arguments and issues
23. First, Mr Scott SC,[3] acting for Gracewood, contends that it is an “interested person” within the meaning of s33(6) BO. This is disputed by Mr Chris Fong for Zhan, who argues that Gracewood’s claim against Zhan was already time-barred and therefore it was not an “interested person” for the purpose of s33(6) BO.
24. Second, Gracewood argues that the Bankruptcy Order ought not to have been made, when the condition for the bankruptcy court’s jurisdiction under s4 BO were not met. Specifically:-
(1) Gracewood argues that s4(1)(a) BO was not satisfied, when Zhan’s domicile was not in Hong Kong when the petition was presented. This is disputed by Zhan, who contends that his domicile was in Hong Kong.
(2) Zhan further argues that he had carried on business in Hong Kong in the period of 3 years prior to the date on which the petition was presented. In the premises, Zhan’s case is that the condition under s4(1)(c) BO was met. But given Zhan and Chen did not attend the Hearing, their evidence is not admissible. As such, there is simply no evidence to show that Zhan had a place of residence in Hong Kong in the period of 3 years prior to the date on which the Petition was presented.
25. In the circumstances, broadly speaking, the issues to be resolved at this Hearing are:-
(1) the principles that are applicable on an application for annulment of a bankruptcy order;
(2) whether Gracewood was an “interested person” within the meaning of s33(6) BO;
(3) whether the Bankruptcy Order ought not to have been made; and this depended on whether the conditions under s4 BO were met; and
(4) if the Bankruptcy Order ought not to have been made, whether the discretion should be exercised so as to annul the Bankruptcy Order.
D. Applicable principles on annulment of bankruptcy order
D1. Relevant statutory provisions
26. Section 4(1) BO sets out the conditions that must be satisfied for the Court to have jurisdiction to entertain a bankruptcy petition. It reads this:-
“4. Conditions to be satisfied in respect of debtor
(1) A bankruptcy petition shall not be presented to the court under section 3(1)(a) or (b) unless the debtor –
(a) is domiciled in Hong Kong;
(b) is personally present in Hong Kong on the day on which the petition is presented; or
(c) at any time in the period of 3 years ending with that day –
(i) has been ordinarily resident, or has had a place of residence, in Hong Kong; or
(ii) has carried on business in Hong Kong.”
27. Section 33 BO, which provides for the circumstances in which the court may annul a bankruptcy order, reads, inter alia, as follows:-
“33. Court’s power to annul a bankruptcy order
(1) The Court may annul a bankruptcy order if it at any time appears to the court that –
(a)on any grounds existing at the time the order was made, the order ought not to have been made; or …
… …
(3) The court may annul a bankruptcy order whether or not the bankrupt has been discharged from the bankruptcy.
… …
(6) Any interested person may apply for annulment of a bankruptcy order with leave of the court.”
28. Under s 33(1)(a), a bankruptcy order ought not to have been made where the court has no jurisdiction to make the order in the first place. This would arise, for instance, when the conditions under s4 BO were not met.
29. Section 33(3) is based on s282(3) of the Insolvency Act 1986. As explained by the Hong Kong Law Reform Commission in its Report on Bankruptcy (May 1995), the Hong Kong Law Reform Commission recommended the adoption of s282(3) of the 1986 Act, as the section gives the Court power to annul a bankruptcy order even after the bankrupt has been discharged, thus giving broad scope for the rectification of injustice (see §7.9 thereof).
30. Section 33(6) was discussed by Deputy High Court Judge H. Au-Yeung in the Decision dated 21 November 2023. His Lordship held that leave to apply for annulment should only be granted if the Court is satisfied that the application has prospects that are more than “fanciful” without having to be “probable”: Decision [22]-[27].
D2. The case law
31. In Kam Hung Cheung v Bank of China (Hong Kong) Ltd [2009] 3 HKLRD 597 at [11], the Court of Appeal adopted the principles on annulment summarized by Chu J (as she then was). Those principles, insofar as they are relevant for present purposes, may be summarized as follows:-
(1) In considering whether to exercise the power under s33(1)(a), the court should first look at whether there were any grounds on which a bankruptcy order ought not to have been made at the material time when it was made. If the court does not think that such grounds existed, it cannot invoke s33(1)(a) to annul the bankruptcy order.
(2) If the court thinks that such grounds existed, it still has to consider whether it should exercise its discretion to annul the bankruptcy order.
(3) In exercising the discretion under s33(1), the court has to carefully consider the interests of the creditor, the debtor and the public, bearing in mind that a bankruptcy order is to be annulled only under exceptional circumstances.
(4) The person applying to annul a bankruptcy order bears the burden of proving that when the order was made, there were grounds on which the order ought not to have been made.
32. Where the ground for annulment goes to a petitioner’s entitlement to present the petition such that the court lacks jurisdiction to make the bankruptcy order in the first place, it would not be an appropriate exercise of the discretion to withhold the order of annulment: Re Wong Lei Kwan Joanne, ex p Bank of China (Hong Kong) Ltd [2009] 3 HKLRD 173 at [29], Barma J (as he then was).
33. Similarly, in Re Fung Chi Fong [2011] 2 HKLRD 856 at [43], where the receiving order was made without jurisdiction, To J held that the discretion can only be exercised one way by rescinding the order which the court had no jurisdiction to make. The court cannot have discretion not to rescind, because the effect of not rescinding would be to affirm the order which the court had no jurisdiction to make.
34. In Raiffeisenlandesbank Oberosterreich AG v Meyden [2016] EWHC 414 (Ch), Nugee J (as he then was) had to consider whether a bankruptcy order should be annulled on the ground that it ought not to have been made under s283 of the Insolvency Act 1986 when the bankruptcy order was made without jurisdiction.
35. Nugee J referred to the oft-cited decision in Munks v Munks [1985] FLR 576, 577, where Sir Roger Ormrod said this:-
“An order made without jurisdiction which one party is entitled ex debito justitiae, to have set aside cannot possibly be saved by the slip rule or by the inherent jurisdiction. Once the court’s attention is brought to the fact that the order was made without jurisdiction, there is no alternative but to set it aside.
Counsel for the husband submitted that the order had been acted on to the extent of handing over the car and the wife was estopped from challenging the validity of an order. It is, however, well settled that jurisdiction cannot be conferred by consent or estoppel. Moreover, any person who might be affected by such an order is entitled as of right to have it set aside”.
36. According to Nugee J, Munks v Munks remains good law. His Lordship then conducted a review of the authorities in the context of the Insolvency Act 1986. The general position is that, once it becomes apparent to the Court that a bankruptcy order has been made without jurisdiction, a party or any person who might be affected by such an order is entitled as of right to have it set aside. It is a matter of general principle of procedural law that would apply to insolvency proceedings just as much as to any other proceedings, and that, in the absence of s282 of the 1986 Act, the Court would nevertheless be obliged to set aside a bankruptcy order, on being satisfied that the Court did not have jurisdiction to make the order in the first place. Whilst s282 confers a true discretion, in a case in which the bankruptcy order was made without any jurisdiction at all, the logic of Munks v Munks dictates that the Court has no choice but to set the order aside: Meyden (above) at [17]-[37].
37. Nonetheless, Nugee J also observed that, when a bankruptcy order was 10, 15 or 20 years old, it might be very difficult for anybody, certainly a creditor whose claims had ceased to be, in practical terms, enforceable, to claim that they were a person affected by such an order, such that the court retains a discretion to refuse to entertain an annulment application: Meyden [38]-[39].
38. However, that observation does not apply in the present case, for that addresses the situation where the claims had already ceased to be enforceable at the time of the annulment application. As I shall explain in Section E in this Decision, insofar as Gracewood’s claim on the Guarantee is concerned, in my judgment, the limitation period has not yet expired.
39. Meyden was followed in Deutsche Apotheker-und Arztebank EG v Dr Ralph Rainer Leitzbach & Anr [2018] EWHC 1544 (Ch), per HH Judge David Hodge QC (sitting as a Judge of the High Court) (“Leitzbach”). It was held that if a bankruptcy order was made without jurisdiction, it should be set aside, without consideration of discretionary matters: [45]. I shall come back to Leitzbach later, when I deal with the parties’ arguments on whether Gracewood’s claim has been time-barred.
E. “Interested person” within the meaning of s33(6) BO
E1. The arguments
40. Mr Fong takes an objection that Gracewood is not an “interested person” within the meaning of s33(6) BO. He argues that its claim under the Guarantee was time-barred, as there was an implied term that Gracewood should demand for the repayment within reasonable time after the principal’s default.
41. In response, Mr Scott SC argues that:
(1) Gracewood is clearly an “interested person” within the meaning of s33(6) BO; and was so held by Deputy High Court Judge H. Au-Yeung.
(2) An interest under s33(6) BO does not necessarily require the proof of a definite entitlement to a claim. Whether Gracewood is entitled to the claim under the Guarantee, or whether such claim has already been time-barred, are matters to be resolved in the High Court Action, rather than in the Annulment Summons.
(3) There is no question of Gracewood’s claims being time-barred, when the limitation period has not even started to run in light of Clause 8 of the Guarantee.
(4) Mr Fong’s argument on implied term is misconceived, when no such term can be implied for it would be inconsistent with the express terms of the Guarantee.
42. In light of Mr Scott’s reliance on Clause 8 of the Guarantee, Mr Fong further argues that Clause 8 is void or unenforceable for being contrary to the public policy.
43. All along Zhan had been proceeding on the basis that Gracewood only made a demand on the Guarantee on 9 March 2022 in writing. However, in the closing submissions, Mr Fong relied upon the evidence of Mr Wong Kai Wa (“Wong”) in cross-examination and argued for the first time that an oral demand was in fact made by Gracewood (through Wong) to Zhan on the Guarantee back in 2005. This is vigorously opposed by Mr Scott, who provided me extract of the notes taken in respect of the cross-examination of Wong.
44. As a result, I asked Mr Fong to re-consider if he wanted to pursue this argument. If so, he should identify clearly and specifically the part of the oral evidence of Wong that he relied upon. Having reconsidered the matter and taken further instructions, Mr Fong confirmed that he would no longer pursue this argument; and that Zhan would proceed on the basis that Gracewood only firstly made the demand on the Guarantee on 9 March 2022.
E2. “Interested person” within the meaning of s33(6)
45. Mr Scott SC relies upon the Decision of Deputy High Court Judge H. Au-Yeung to argue that Gracewood is an interested person. But in my view, that would not be sufficient for the present purpose, for His Lordship only granted leave under s33(6) on the basis that Gracewood had demonstrated a “reasonable prospect of success”: [20], [27], [33]-[34], [36] of His Lordship’s Decision.
46. Therefore, for the purpose of determining if the Bankruptcy Order should be annulled, I would still have to consider if Gracewood is an “interested person” within the meaning of s33(6) BO. It is against such context that Mr Scott SC also relies upon the following authorities.
47. In Re Roehampton Swimming Pool Ltd [1968] 1 WLR 1693, an infant was seriously injured after diving into a swimming pool owned and occupied by a limited company, which later went into voluntary liquidation and was later deemed to have been dissolved. A partner in the firm of the infant’s solicitors applied ex parte under s352(1) of the Companies Act 1948 for an order declaring the dissolution void such that the resuscitated company could be joined as a defendant. The preliminary question for the court’s determination was whether the solicitor was a “person who appears to the court to be interested”. Megarry J held that the solicitor was not a person interested. After conclusion of the judgment, his Lordship allowed an amendment application substituting the name of the infant for that of the solicitor as the applicant; and made an order under s352.
48. For present purposes, it is pertinent to note what Megarry J said at 1698E-G:-
“The word “interest” is, of course, susceptible of more meanings than one; and like so much of the English language, its meaning often has to be discerned from the context. In relation to making an order for the revival of a defunct company, it seems to be to be more probable that the word refers to a pecuniary or proprietary interest than that it embraces all matters of curiosity or concern. After all, those who are interested in companies are nearly always interested financially or in a proprietary way; the whole field is dominated by finance. I cannot conceive that Parliament intended that a man who felt a lifelong concern for dissolved companies should be free to gratify his passion by reviving them under section 352, however deep and genuine his feelings, and whether his affections were spread among all such unfortunates, or were concerned on one favoured corporation …”
49. As reflected from Re Roehampton Swimming Pool Ltd, it was not necessary for the claimant to prove that the infant’s claim would prevail at the end of the day. Subsequently, in In re Beesley (a bankrupt) [1975] 1 WLR 568, those principles in Re Roehampton Swimming Pool Ltd were considered in an application to annul a bankruptcy order. At 570-572, it was held that, whilst it did not follow that a “person interested” must show a specific interest in the sense of an interest in some particular claim, contract or the like, mere matrimonial status was not a sufficient foundation to make one spouse “a person interested” within the meaning of s29(1) of the Bankruptcy Act 1914.
50. In Leitzbach (above), HH Judge David Hodge QC (sitting as a Judge of the High Court) said this:-
“46. In my judgment, the answer to the limitation problem is that supplied by Nugee J at paragraph 39 of his judgment: whether under the general law established in Munks v Munks, or under Section 282(1)(a) of the 1986 Act, before a person can apply to annul a bankruptcy order, he must show a sufficient interest to have it set aside, in the sense that he is a person who may be affected by the order. That question is, in my judgment, to be determined not by reference to the facts as they existed at the time the bankruptcy order was originally made, but by reference to the facts as they exist at the time of the application to set it aside. The question is whether, at the date of the application to annul, the applicant can be said to be a person affected by the bankruptcy order so as to have the necessary standing to apply to have it annulled. Thus, for example, a person who was a creditor at the time the bankruptcy order was made, but whose debt has since become statute-barred, would, in my judgment, not have the necessary standing to apply for an annulment of the bankruptcy order. In my judgment, that is a sufficient answer to the concern that a bankruptcy order could be annulled very many years after it had been made.
47. If however, I am wrong in that, and there does remain a residual discretion, the fact that the order was made without jurisdiction is a very powerful factor to weigh in the balance in deciding whether the original bankruptcy order should be set aside, consistently with the pre-Meyden authorities. If the matter is one of discretion, the court will almost invariably exercise the discretion to annul where a bankruptcy order has been made without jurisdiction, particularly if the debtor has in any way contributed to the making of a bankruptcy order without the necessary jurisdiction in the court to do so.”
51. Whilst cases like Re Roehampton Swimming Pool demonstrate that it is not necessary for the applicant to prove its claims would prevail at the end of the day, it appears from Leitzbach §46 and Meyden §39 that the question of limitation period would have to be approached on a different footing. If Gracewood’s claim has already been time-barred at the time of this application and is therefore doomed to fail, it would not have any pecuniary or financial interest in annulling the Bankruptcy Order. On this basis, applying the principles in Meyden and Leitzbach, I would still have to consider and determine if Gracewood’s claim on the Guarantee has become statute-barred.
E3. Gracewood’s claims on the Guarantee not time-barred
52. First, Clause 8 of the Guarantee reads this:-
“8.擔保人同意有關向擔保人追溯負債的時間限制應由該公司向擔保人提出還款要求之日開始計算，而在多過一個要求的情況下將會由每一個要求的日期及指定之款項下開始計算。”
The agreed English Translation of Clause 8 reads this:
“8. The Guarantor agrees that the limitation period for the claim against the Guarantor in respect of the Indebtedness shall begin to run from the date on which the Company demands the Guarantor for repayment, and if more one demand is made, then the limitation period shall run only from the date of each demand and the specific payment thereunder.”
53. Under Clause 8, there is no question of the claim being time-barred, for it is agreed between the parties that Gracewood only made the demand on the Guarantee on 9 March 2022; and that the limitation period only started to run from that date.
54. Mr Fong argues that Clause 8 is void for being contrary to public policy. He relies upon Rossi v Rossi [2007] 1 FLR 790 at §30 for the proposition that “ … limitation periods and the doctrine of laches embody the public policy consideration … that the longer the lapse of time the more confident a party should be that no claim will be initiated against him, and the more secure he should feel that his financial structures will not be disturbed …”.
55. Mr Fong also relies upon Hong Kong Civil Procedure 2024 (Vol.2) at §F1/3/1(5), where the learned editors summarized the underlying policies relating to the operation of the Limitation Ordinance as follows:-
“The policy considerations underlying the legislation on limitations have been described as threefold:
(i) to protect defendants from being vexed by stale claims relating to long-past incidents about which their records may no longer be in existence and as to which their witnesses, even if they are still available, may well have no accurate recollection;
(ii) to encourage plaintiffs not to go to sleep on their rights but to institute proceedings as soon as it is reasonably possible for them to do so …
(iii) to ensure that the person may with confidence feel that after a given time he may treat as being finally closed an incident which might have led to a claim against him” – the report of the Edmund Davies Committee on Limitation of Actions in cases of Personal Injury” Cmnd 1829 of 196.”
56. With respect, Mr Fong’s argument is misconceived, for in the present case, we are concerned with a completely different question, namely, whether it is open to Gracewood and Zhan to enter into a contract along the lines contained in Clause 8 of the Guarantee, such that the limitation period will not run until a demand has been made by the claimant. None of those authorities relied upon by Mr Fong addresses this question.
57. During the opening submissions, in light of Mr Fong’s argument, I also drew parties’ attention to Chitty on Contracts (35th ed, 2023), §32-107, where the learned authors said this:-
“The parties may by contract postpone the commencement of the limitation period by agreeing that the cause of action shall not accrue until some act or event occurs, e.g. service of a written notice of claim”.
58. In the closing submissions, Mr Fong still argued that there was no authority cited in Chitty §32-107 and the Hong Kong courts have not resolved this issue. On the other hand, Mr Scott SC helpfully referred me to the decision of the High Court of Australia in Price v. Spoor (2021) 270 CLR 450. In that case, the issue was whether a covenant given by the mortgagor not to plead a defence of statutory limitation was void or unenforceable for being contrary to public policy. It was unanimously held that the clause was enforceable; and that an agreement to exclude a statutory limitation period was found to be legally efficacious: §§88-98. For present purposes, it is pertinent to note the following principles derived from Price v Spoor:-
(1) The limitation statute (such as the Limitation Act in Queensland and the Limitation Ordinance in Hong Kong) has the purpose of ensuring the finality of litigation.
(2) Whether a person may abandon the statutory right to plead a defence of limitation by agreement depends on the scope and policy of the limitation statute. The test is whether the applicable provisions are “dictated by public policy” and were enacted “not for the benefit of any individuals or body of individuals, but for the considerations of State”. If so, they cannot be excluded by contract.
(3) But if the benefit conferred by statute is otherwise private in nature, the law may permit the parties to exclude it. The critical question is whether the benefit is personal or private or whether it rests upon public policy or expediency.
(4) The way that the Limitation Act gives effect to the said policy objective is by conferring a right on an individual defendant in a particular case to elect to plead a limitation period. As such, enforcing a contractual agreement not to plead a limitation period is entirely compatible with the terms of the Limitation Act and the policy underpinning it, because it is always left to an individual to choose whether to forgo the right conferred by statute, citing Mason CJ’s decision in The Commonwealth v Verwayen (1990) 170 CLR 394, at §§76-78, 87-88.
(5) An agreement to exclude a statutory limitation period was found to be legally efficacious: §§89-95.
(6) Such conclusion is consistent with the broad principle of freedom of contract: §§96-98.
59. Further, Mr Scott SC also relies upon the fact that the courts have long recognized tolling or standstill agreements. For instance, in Revenue and Customs Comrs v Benchdollar Ltd [2009] STC 2342, Briggs J (as he then was) said this at §8:-
“To a litigation lawyer, the obvious solution is what is generally known as a “tolling agreement”, namely a contract between the parties to the relevant dispute that the defendant will not raise a limitation defence to a claim started after the expiry of the limitation period, during a specific further period identified in the contract. Tolling agreements are a common feature in the resolution of commercial disputes, all the more so since the general recognition among the litigation community of the desirability of seeking to settle disputes, if at all possible, without recourse to court proceedings, which is a fundamental plank of the reforms to civil procedure introduced by Lord Woolf.”
60. Mr Fong has not been able to explain why the aforesaid authorities and principles are not applicable here.
61. In the premises, applying those principles in Price v Spoor, there is simply nothing to support Mr Fong’s argument that Clause 8 of the Guarantee is void for being contrary to public policy. Clause 8 remains legally binding and enforceable.
E4. An implied term under the Guarantee that Gracewood should serve the demand on the Bankrupt within reasonable time
62. Mr Fong further argues that, should Clause 8 be found to be binding upon Zhan, that is not the end of the matter, for the limitation period would have expired. His argument is that a term should be implied into the Guarantee such that Gracewood should issue the demand against Zhan within a reasonable period of the principal’s default in settling the Debt. He argues that such term should be implied into the Guarantee, as Zhan had satisfied the five conditions discussed in BP Refinery (Westernport) Pty Ltd v. Shire of Hastings (1977) 180 CLR 266, 283:-
“for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”
63. With respect, Zhan’s argument is untenable. Mr Fong has not been able to explain why the alleged implied term is necessary to give business efficacy to the Guarantee (in the sense that without such alleged implied term the Guarantee would lack commercial or practical coherence): Marks & Spencer v BNP Paribas Securities Service [2016] AC 742 at [21], per Lord Neuberger. Further, it is trite that a term cannot be implied into the Guarantee when it is inconsistent with its express terms: Kensland Realty Ltd v Whale View Investment Ltd & Anr (2001) 4 HKCFAR 381 at [23]. In the present case, when there is already an express term in the form of Clause 8 dealing with the making of demand and also the limitation period, there is simply no room for the alleged implied term.
E5. Conclusion
64. In conclusion, Gracewood’s claim on the Guarantee, being pecuniary and proprietary in nature, is not time-barred. In the premises, I am satisfied that Gracewood is an “interested person” within the meaning of s33(6) BO.
F. Zhan was not domiciled in Hong Kong
F1. The arguments
65. It is Gracewood’s case that the Petition was presented on the sole basis under s4(1)(a) BO, and yet this condition was not met as Zhan was not domiciled in Hong Kong at the time of the presentation of the Petition.
66. On the other hand, Mr Fong contends that Zhan was domiciled in Hong Kong when the Petition was presented. He further complains that that, due to the delay in this case, the court files have been destroyed and the Petitioner’s lawyers could not locate the files.
67. Whilst the court files could no longer be located, that is not the end of the matter, for the Petitioner’s solicitors filed the Affirmation of Siu Wan Yee Sam dated 3 November 2022 (“Siu”). According to Siu, the soft copy of documents relating to the cases have been located, which are said to be the same as the hardcopy of documents issued and filed for the Petitioner. According to Siu:-
(1) Zhan executed a guarantee in favour of BOC’s predecessor, Sin Hua Bank Limited, to guarantee the debts and liabilities owed by a company known as A & P International Trading Ltd (“API”). API had its registered address at Flat 1206, 12/F, Great Eagle Centre, Wanchai, Hong Kong. Default judgment was entered against Zhan. As he failed to satisfy the default judgment, statutory demand was issued and was not complied with. The Petition was presented against him when Zhan failed to satisfy the default judgment.
(2) However, Zhan was neither a shareholder nor a director of API.
(3) The Petitioner’s solicitors were not able to locate Zhan. For the purpose of the Petition, the Petitioner’s case was that Zhan was a holder of Hong Kong ID Card and that there was no evidence that he had removed himself from the jurisdiction; and on this basis the Petitioner believed that Zhan was domiciled in Hong Kong.
F2. Applicable principles
68. The principles on domicile are not in dispute. Gracewood relies upon Re Cao Zhong[2021] HKCFI 3143 at [52], at which Recorder William Wong SC applied Re Ip Pui Man Nina [2011] 3 HKLRD 299 (which sets out the common law principles summarized by DHCJ L. Chan in 有關顧主強（債務人）的事宜 [2007] 2 HKLRD 292):-
(1) “Domicile” is a legal concept distinct from “permanent home”. The requirements of domicile go beyond those of permanent home. A person who desires to acquire a domicile in a country or place must intend to reside in it permanently or indefinitely.
(2) An independent person can acquire a domicile by, and only by, residing there with the intention to reside there permanently or indefinitely.
(3) In determining whether a person has the intention to reside permanently or indefinitely in a place, the court must have regard to the motive for which he has taken up residence there.
(4) To acquire a domicile in a country or place, a person must freely choose to reside there and must not reside there because he is prescribed or dictated by external factors such as the duties of office, the demands of creditors or the need to seek medical treatment.
(5) If a person has a special purpose for going to and staying there and he will leave that place once the purpose is achieved, then he lacks the intention to stay in that place as required by law and hence cannot acquire a domicile in that place.
(6) The existing domicile of a person is deemed to continue until it is proved that he has acquired a new domicile, and he who asserts a change of domicile bears the burden of proving the truth of the assertion.
(7) As abandonment or change of domicile is a very serious issue and satisfactory evidence is needed to prove an intention to change a domicile.”
69. Further, at Re Cao Zhong at [53], Recorder William Wong SC summarized the principles set out in [10]-[15] in Henwood v Barlow Glowes International Ltd (in liq) [2008] EWCA Civ 577 and said this:-
“(1) The intention of residence must be fixed and must be for the indefinite future. It is not enough that at any given point in time its length has not been determined.
(2) Given that a person can only have one domicile at any one time for the same purpose, he must have a singular and distinctive relationship with the country or place of supposed domicile of choice. That means it must be his ultimate home or, as it has been put, the place where he would wish to spend his last days.”
70. Mr Fong does not dispute any of the aforesaid principles.
71. Gracewood also relies upon W v C (Divorce: Jurisdiction) [2013] 2 HKLRD 602 at [20], in which the Court of Appeal referred to Y v W [2012] 2 HKC 455 at [36], in which HH Judge B Chu (as she then was) set out those factors that may be taken into account in determining an individual’s intention (for the purpose of domicile):-
(1) Length of residence;
(2) Condition of residence: Purchased property? Leased property? Furnished lodgings? Hotels?;
(3) Marriage with a local partner;
(4) Whereabouts of the family;
(5) Business interest;
(6) Whereabouts of personal belongings;
(7) Whereabouts of the person’s property and investments;
(8) The fact of naturalisation;
(9) Decision made as to the nationality of the children;
(10) Education of the children;
(11) Memberships of clubs or religious associations;
(12) Place of work;
(13) Relation between a man and his family.”
72. W v C (Divorce: Jurisdiction) is a case governed by the Domicile Ordinance (Cap 596), which only came into force on 1 March 2009. Our case is different. We are concerned with Zhan’s domicile back in May 2005; and the Domicile Ordinance (Cap 596) had not yet been enacted. As such, Zhan’s domicile would still have to be determined according to common law: s13 of the Domicile Ordinance (Cap 596); W v C (Divorce: Jurisdiction) at [12]-[15], per Yuen JA.
73. Nonetheless, as apparent from the discussion of HH Judge B Chu (as she then was) in Y v W [34]-[38], the aforesaid list of factors was relevant in determining a person’s intention (for the purpose of domicile) under common law. On this basis, I am satisfied that the aforesaid list of factors would also be relevant for determining Zhan’s domicile back in May 2005. Further, in considering the question of domicile, I also bear in mind that a declaration on domicile should not be conclusive but should be only one of the factors to be considered. The court should also look at the conduct of the person concerned and all the circumstances; and should not attach undue weight to a declaration on domicile.
F3. Discussion and ruling
74. Applying the aforesaid principles to the present case, it is clear that Zhan had never been domiciled in Hong Kong at the time when the Petition was presented.
75. First, the evidence adduced by the Petitioner in support of the Petition clearly is not sufficient to show that Zhan’s domicile was in Hong Kong when the Petition was presented. Indeed, Mr Fong never argues that such evidence would be sufficient for that purpose.
76. Second, there is no admissible evidence to support Zhan’s contention that his domicile was in Hong Kong when the Petition was presented. As Zhan failed to attend this Hearing for cross-examination, Zhan’s affirmations are all inadmissible. There is no evidence from Zhan on important matters such as his intention to reside permanently or indefinitely in Hong Kong.
77. Third, Gracewood relies upon Zhan’s arrival and departure records in New Zealand. Those records were adduced by Gracewood in the New Zealand Proceedings and were not disputed by Zhan. As confirmed by the Privacy Officer from the Immigration Department of New Zealand, Zhan arrived in New Zealand on 3 July 2002 and has not left New Zealand since his arrival.
78. Fourth, it is highly significant to note Zhan’s 1st affidavit dated 31 May 2022 filed in the New Zealand Proceedings (“Zhan NZ 1st”), in which he stated on oath as follows:-
(1) He was born and raised in Mainland China. He and Yang were married in Auckland in February 2001: Zhan NZ 1st §3.
(2) He went to New Zealand to avoid political persecution in Mainland China: Zhan NZ 1st §§15, 21, 38, 49.
(3) His children were born and raised in New Zealand, and he still had the responsibility and obligation to raise them and put them through education; and therefore he would not leave New Zealand: Zhan NZ 1st §49.
79. Fifth, Gracewood also exhibited Yang’s affidavits filed in the New Zealand Proceedings. In Yang’s 2nd affidavit dated 1 June 2022 (“Yang NZ 2nd”), she said on oath that:-
(1) Mr Zhan arrived in New Zealand to live permanently in July 2002: Yang NZ 2nd §12.
(2) They had two children born and raised in New Zealand: the daughter was born in 2003 and the son in 2007: Yang NZ 2nd §21.
(3) Zhan bought real property in New Zealand in joint names with Madam Yang in May 2002, before he settled there since 3July 2002 and transferred it to Yang’s name in July 2002: Yang NZ 2nd §25.
80. In light of the aforesaid circumstances, Zhan’s domicile was not Hong Kong when the Petition was presented. As such, the condition under s4(1)(a) BO was not met.
G. Section 4(1)(c)(ii): that Zhanwas carrying on business in Hong Kong during the Relevant Period
G1. The arguments
81. In resisting the Annulment Summons, Mr Fong argues for Zhan that the Bankruptcy Order should not be set aside, for the condition under s4(1)(c)(ii) BO was met, viz., that the debtor, at any time in the period of 3 years ending with [the day on which the petition was presented] … has carried on business in Hong Kong.
G2. Applicable principles
82. It is well settled that this condition under s4(1)(c)(ii) BO is not satisfied by showing merely that a person is running his company’s business even though he is the sole beneficial shareholder and in complete control. A person is not regarded as carrying on business in Hong Kong simply because he is organizing or managing or takes charge of the business of the company in this jurisdiction, whether as a director or otherwise: Re Chen Mei Huan, ex p Venetian Macau Ltd [2020] 1 HKLRD 409, at [4]-[5], G Lam J (as he then was).
83. Whether a person has carried on business in this jurisdiction is a question of fact that must depend on the circumstances of each case. There must be some evidence of activities on the part of the debtor “over and above those attributable to the company” to show that the debtor has carried on business of his own. Merely taking part in the business of a company is not a sufficient basis for finding that the debtor has himself carried on business in Hong Kong: Re Chen Mei Huan at [8].
84. Further, the expression of the “carrying on” of a business implies a repetition of acts and, ordinarily, must be performed for the purpose of making a gain or profit; the series of acts must be such that they constitute business: Re Wang Huimin[2021] HKCFI 3472, at [16], [17] and [35], per Ng J, citing Lee Yee Shing v Commissioner of Inland Revenue (2008) 11 HKCFAR 6.
G3. Discussion and ruling
85. As Zhan and Chen chose not to attend this Hearing, their affirmations filed in these proceedings are inadmissible.
86. Without those affirmations, Mr Fong could only rely upon Zhan’s travel records, showing that Zhan travelled to and from Hong Kong until 27 June 2002. He also relies upon some company search records, showing that Zhan’s companies incorporated in Hong Kong were not dissolved until 2009. However, in light of the principles discussed above, especially Re Chen Mei Huan, Mr Fong’s arguments cannot even get off the ground. There is simply nothing before this Court to support Mr Fong’s argument that Zhan was carrying on business in Hong Kong at the relevant period (i.e. 3 years from 6 May 2002 to 6 May 2005). There is no evidence on basic matters such as the nature of Zhan’s business, let alone Zhan’s activities or level of participation in such business.
87. In conclusion, the condition under s4(1)(c)(iii) BO was not satisfied when the Petition was presented.
H. Discretion
88. As the conditions in s4 BO were not satisfied, the Bankruptcy Order was made without jurisdiction. In the circumstances, I am satisfied that the Bankruptcy Order ought not to have been made.
89. Mr Fong submits that I should exercise my discretion not to annul the Bankruptcy Order because of the long delay. I am not persuaded:-
(1) In light of the discussion in Section D above, I do not see why I should withhold the annulment in the exercise of the Court’s discretion, when the Bankruptcy Order was made without jurisdiction and that Gracewood’s claim is not time-barred.
(2) Further, there is no allegation, let alone credible evidence, that to annul the Bankruptcy Order would cause prejudice to other creditors. Both the Petitioner and the Official Receiver remain neutral to the Annulment Summons.
(3) Mr Fong criticizes Gracewood for delay in commencing proceedings against Zhan only in 2022. Such criticism is unfounded. Wong for Gracewood already explained in his affirmations that Zhan had absconded in about 2005 and could not be located since then. Wong had been trying to locate him; and it was only in about 2021 that through the private investigator that Zhan was found to be residing in New Zealand. Once Zhan was found, Gracewood had quickly commenced the High Court Action in 2022.
(4) As Zhan chose not to attend this Hearing, there is no admissible evidence from him. As such, there is not even any evidence of any prejudice that he would suffer as a result of any delay or the annulment of the Bankruptcy Order.
90. Finally, Mr Fong relies upon the Court of Final Appeal’s decision in Official Receiver & Trustee in Bankruptcy of Chan Wing Hing v Chan Wing Hing (2006) 9 HKCFAR 545, [42], [70]-[71], for the proposition that the bankruptcy regime “aims at striking a balance between the proper protection of the creditors’ interests and enabling a bankrupt to achieve financial rehabilitation within a reasonable time”. On this premise, Mr Fong argues that annulling the Bankruptcy Order would be contrary to the rehabilitative nature of the bankruptcy regime; and this is a weighty factor against the annulment.
91. With respect, this argument is wholly misconceived, for it puts the cart before the horse. There is no basis to consider the questions of discharge and rehabilitation, if the facts demonstrate that the Bankruptcy Order ought not to have been made at the first place. Further, s33(3) BO gives the Court power to annul a bankruptcy order even after the bankrupt has been discharged. There is no evidence from Zhan on any prejudice that he would suffer should the Bankruptcy Order be annulled. Quite the contrary, Clause 7(e) of the Guarantee makes it clear that Zhan’s liability as guarantor shall not be discharged by reason of, inter alia, bankruptcy of the guarantor.
I. Conclusion and disposition
92. In conclusion, I allow the Annulment Summons. A draft Order was submitted by Mr Scott SC at the end of the Hearing, incorporating comments from the Official Receiver on the draft. Mr Fong made no submissions on its terms. Having considered the same, I make an Order that:-
(1) The Bankruptcy Order made against the Bankrupt on 6 July 2005 be annulled;
(2) The Bankruptcy Petition be dismissed;
(3) An order nisi that:-
(a) the costs of and occasioned by the Interested Person’s Summons dated 2 August 2022, including but not limited to all costs reserved (including those reserved under the Order dated 21 November 2023), be paid by the Bankrupt to the Interested Person, to be taxed if not agreed, with certificate for two counsel;
(b) costs of the Official Receivers (which cover the costs incurred in the preparation of the Official Receiver’s Report filed on 19 October 2022 and attendance at the directions hearing on 21 December 2022), summarily assessed in the sum of HK$5,000, be paid by the Bankrupt to the Official Receiver’s Office; and the order nisi shall become absolute within 14 days from the date of this decision.
93. Finally, it remains for me to thank counsel for their assistance.
| | (MC Law, SC) |
| | Deputy High Court Judge |
Mr John Scott SC, leading Mr Richard Yip and Mr Enoch Fong, instructed by Nixon Peabody CWL, for the Interested Person
Mr Chris Fong, instructed by Careina Chan & Co, for the Bankrupt
Messrs Tsang Chan & Wong, for Bank of China (Hong Kong) Ltd, the Petitioner (attendance excused)
Official Receiver (attendance excused)
[1] According to the Official Receiver’s Report, this case was classified as a case which the repealed s30A(10)(a) BO would have applied. However, since the CFA’s decision in Official Receiver v Zhi Charles (formerly known as Chang Hyun Chi) & Anr (2015) 18 HKCFAR 467, Zhan was considered automatically discharged from bankruptcy on 6 July 2009 (i.e. 4 years from the date of the Bankruptcy Order).
[2] Covering departures and arrivals using Hong Kong identity card only, but not other travel documents.
[3] leading Mr Richard Yip and Mr Enoch Fong