YEUNG MAN v. NEW WINNING FINANCE COMPANY LTD, (IN LIQUIDATION), a Creditor

CACV 239/2022, [2024] HKCA 697

On Appeal From [2022] HKCFI 1472

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 239 OF 2022

(ON APPEAL FROM HCB NO 5026 OF 2021)

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JUDGMENT

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Hon Chow JA (giving the Judgment of the Court):

1.  On 18 May 2022, Anthony Chan J made a bankruptcy order (“the Order”) against the Debtor upon the petition of the Petitioning Creditor.

2.  On 14 May 2024, this Court gave its judgment (“the CA Judgment”) dismissing the Debtor’s appeal against the Order with costs to the Petitioning Creditor.

3.  The basic facts of this case and the Court’s reasons for dismissing the Debtor’s appeal are set out in the CA Judgment and will not be repeated here.

4.  By Notice of Motion dated 11 June 2024, the Debtor applies for leave to appeal the CA Judgment to the Court of Final Appeal. 

5.  Pursuant to paragraph 3 of Practice Direction 2.1, we determine the present application for leave to appeal on paper without an oral hearing.

6.  Under s 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance, Cap 484, an appeal shall lie to the Court of Final Appeal at the discretion of the Court of Appeal or the Court of Final Appeal in any civil cause or matter if, in the opinion of the Court of Appeal or the Court of Final Appeal (as the case may be), the question involved in the appeal is one which, by reason of its great general or public importance, or otherwise, ought to be submitted to the Court of Final Appeal for decision.

7.  In the Notice of Motion, the Debtor contends that leave to appeal should be granted because the intended appeal involves questions of great general or public importance.  The Notice of Motion sets out various grounds on which it is argued that the Court of Appeal erred in the CA Judgment.  In particular, it is argued that:

(1)  The Court of Appeal erred in applying the relevant principles (namely, the Judge should not have conducted a “mini-trial” on affidavit evidence), and in its approach to the evidence (§2).

(2)  The Court of Appeal erred in adopting the approach of not interfering with the Court of First Instance’s decision subsequent to a mini-trial as the Court of First Instance failed to take into account the contents of the Notice and the Proof of Payment (§3).

(3)  The Court of Appeal failed to realise the serious conflicts and triable issues as to the documentary evidence (§4).

8.  At §5 of the Notice of Motion, the Debtor poses the following question –

“In other words, where bona fide dispute had been raised and the trial judge once opined that further evidence would shed considerable light on the veracity of the defence, is the Court allowed to just ‘carefully scrutinize’ the affirmation evidence and make the bankruptcy order?”

9.  It is apparent from the Debtor/Appellant’s Skeleton Submissions dated 24 June 2024 that the Debtor is seeking, impermissibly, to re-argue the appeal afresh in the present application for leave to appeal.  The matters raised under §§2, 3 and 4 of the Notice of Motion are essentially repetitions of the Debtor’s unsuccessful arguments before the Court of Appeal on Grounds 1, 3 and 6 of the Supplementary Notice of Appeal dated 4 October 2023.  We do not propose to repeat our views on those grounds, which have been set out in the CA Judgment, save to mention that we do not consider any of those grounds to have merits.  In any event, the arguments raised under §§2, 3 and 4 of the Notice of Motion are tied to the particular facts of the present case, and do not give rise to any question of great general or public importance.

10.  The question posed at §5 of the Notice of Motion is premised on the assumption that the Debtor had successfully raised a bona fide dispute of the debt on substantial grounds.  The Judge came to the view that the Debtor had failed to do so, and we see no ground to interfere with the Judge’s view.  Also, the question as framed is not a question of any great general or public importance.

11.  For the above reasons, the application for leave to appeal is refused and the Notice of Motion is dismissed, with costs to the Petitioning Creditor, to be summarily assessed.  We do not consider that there is any sufficient basis to order the Debtor to pay the Petitioning Creditor’s costs on an indemnity basis.  The Debtor shall have leave to file and serve a statement of objections (limited to 2 pages) to the Petitioning Creditor’s Statement of Costs for Summary Assessment dated 9 July 2024 within 14 days from the date of this Judgment.  Subject to such further directions as may be given, the Court will summarily assess the Petitioning Creditor’s costs without further notice to the parties. 

CACV 239/2022, [2024] HKCA 451

On Appeal From [2022] HKCFI 1472

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 239 OF 2022

(ON APPEAL FROM HCB NO 5026 OF 2021)

________________________

____________________

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J U D G M E N T

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Hon Chow JA (giving the Judgment of the Court):

INTRODUCTION

1.  This is the Debtor (“Yeung”)’s appeal against a bankruptcy order made by Anthony Chan J on 18 May 2022 (“the Bankruptcy Order”) upon the petition of the Petitioning Creditor (“Petitioner”).

BACKGROUND FACTS

2.  The Petitioner was a licensed money lender. It is now in voluntary liquidation.

3.  Pursuant to a loan agreement dated 26 April 2017, which was extended by a further agreement dated 26 April 2018 (“the 2018 Loan Agreement”), the Petitioner advanced a loan of HK$14,000,000 (“the Loan”) to Yeung.

4.  According to Yeung, she is a housewife, and the Loan was taken out at the instructions of her partner, Mr Chen Huawei (“Chen”). The Loan was obtained from the Petitioner because Chen knew Mr Wen Jialong (“Wen”). Wen was formerly an executive director and the chairman of the board of directors of Lamtex Holdings Ltd (in liquidation) (“Lamtex”), a Hong Kong listed company. The Petitioner was indirectly wholly owned by Lamtex.

5.  On 18 March 2021, the Petitioner served a statutory demand on Yeung, demanding repayment of the sum of HK$17,126,410.96 (“the Debt”), consisting of (1) the principal amount of the Loan in the amount of HK$14,000,000, and (2) interest accrued on the Loan at 11% pa from 25 April 2019 to 5 February 2021 in the amount of HK$3,126,410.96.

6.  Yeung failed to satisfy the statutory demand.

7.  On 2 September 2021, the Petitioner presented a bankruptcy petition (“the Petition”) against Yeung.

8.  Yeung filed two affirmations in opposition to the Petition. In her first affirmation dated 30 November 2021, she claimed that the Loan had already been discharged by a separate business arrangement negotiated between Chen and Wen in around mid-2018 (“the Repayment Arrangement”), and thus she was not liable to repay the Debt. The Repayment Arrangement was summarised by the Judge at §§10 to 14 of his written judgment dated 18 May 2022 (“the Judgment”), as follows:

“[10] The repayment of the Debt was made through a separate business arrangement negotiated between Chen and Wen in around mid-2018 (‘Repayment Arrangement’). It is not in dispute that at the time Wen was an executive director and board chairman of Lamtex. Wen resigned from such positions with effect from 1 June 2018.

[11] Under the Repayment Arrangement, if Chen’s company, Shenzhen Huaxun Weiye Real Estate Development Co Ltd (‘Huaxun’), made a loan of RMB 30 million to Wen’s company, Shenzhen Zhiweilong Shiye Co Ltd (‘Zhiweilong’), on or before 30 June 2018, then: (i) the Loan together with accrued interest would be ‘deducted’ from the RMB 30 million … and deemed fully repaid; and (ii) the Petitioner would seek repayment of the Loan from Zhiweilong instead.

[12] Yeung had produced 2 documents as evidence of the Repayment Arrangement, one ‘告知函’ (‘Notice’) and a ‘付清借款證明’ (‘Proof of Repayment’), both dated 30 May 2018 and addressed to Yeung. On their face, both documents bore the company chops of the Petitioner and Lamtex, as well as Wen’s signature. In addition, there are Mainland bank documents and loan receipts confirming the transfer of RMB 30 million by [Huaxun] to Zhiweilong on 19 June 2018.

[13] There is also a loan receipt dated 19 June 2018 (‘Receipt’) issued by Zhiweilong, which bore its company chop and Wen’s signature.

[14] By way of the Repayment Arrangement, the Loan and accrued interest were deemed fully repaid.”

9.  The Petition came before the Judge for hearing on 8 May 2022. On the same date, the Judge gave the Judgment, in which he held that Yeung’s case was “unbelievable”, and made the Bankruptcy Order against Yeung.

10.  The Judge held that there was no bona fide dispute of the Debt on substantial grounds because, inter alia:

(1)  The conduct of Yeung was inconsistent with settlement of the Debt. Specifically, after the Debt had allegedly been settled by the Repayment Arrangement, Yeung still paid two instalments of interest to the Petitioner in the sum of HK$840,000 on 25 June 2018 and HK$385,000 on 25 January 2019 respectively. Further, Yeung signed an audit confirmation on or about 21 February 2019, confirming that she still owed the Petitioner the total sum of HK$14,151,890.41 as of 31 December 2018[1].

(2)  The existence of the Debt was further acknowledged by Yeung when she signed the “2019 Loan Agreement” dated 26 April 2019[2]. Any suggestion that Yeung signed the 2019 Loan Agreement without finding out if the Debt was deemed repaid was not believable[3]. Pausing here, it may be noted that after the presentation of the Petition, on 20 September 2021, Yeung’s former solicitors (Tam, Pun & Yipp, “TPY”) claimed that pursuant to Clause 17.2 of the 2019 Loan Agreement, the Petitioner should have commenced arbitration to recover the Debt. According to TPY’s letter of 8 October 2021, the 2019 Loan Agreement was executed to further extend and renew the 2018 Loan Agreement[4].

(3)  Yeung did not respond at all to the many demand letters or the statutory demand from the Petitioner, until after the Petition was filed in early September 2021[5].

(4)  There was no credible explanation for the considerable delay on Yeung’s part in asserting that the Debt had been repaid. Even if Yeung had required time to gather evidence in opposition to the Petition, one would have expected Yeung to instruct her solicitors to remind the Petitioner about the Repayment Arrangement on the first available opportunity. Yeung did not do so. Instead, her solicitors only asked for the matter to be referred to arbitration by relying on the 2019 Loan Agreement which contradicted the Repayment Arrangement. Further, it was not until Yeung filed her first affirmation dated 30 November 2021 that the allegation of the Repayment Arrangement was made for the first time[6].

(5)  Finally, the accounting records of the Petitioner showed that the Loan remained in its books with Yeung’s name as the borrower[7].

11.  As for the Notice, the Proof of Repayment and the Receipt, the Judge was of the view that they did not outweigh the evidence and inference that the Debt remained due and owing to the Petitioner[8]. The Judge was also of the view that those documents were not reliable evidence of the existence of the Repayment Arrangement because, inter alia:

(1)  Wen, who negotiated the Repayment Arrangement with Chen, was not a director of the Petitioner at the time the Repayment Arrangement was reached. He was merely a director of the ultimate holding company of the Petitioner, ie Lamtex[9].

(2)  The Repayment Arrangement was commercially unusual in that it was an arrangement whereby “a director of a parent company was apparently using an asset of its subsidiary (the Loan) for the purpose of his own company”[10].

(3)  There was no explanation why the Proof of Repayment was issued before the loan of RMB30 million was released from Huaxun to Zhiweilong[11].

(4)  Properly analysed, the transaction evidenced by the Notice and the Proof of Repayment was one of novation – the discharge of the Loan and accrued interest owed by Yeung to the Petitioner and the creation of new obligation to repay the same by Zhiweilong to the Petitioner. However, there is no evidence of consent to the novation by Yeung or Zhiweilong. In particular, Yeung’s evidence suggested that she played no part in the Repayment Arrangement. Consent by Yeung, Zhiweilong and the Petitioner was an essential legal requirement for the novation[12].

(5)  There was an inherent conflict between (a) the Notice and the Proof of Repayment, which suggested that the repayment obligation to the Petitioner would be assumed by Zhiweilong, and (b) the Receipt, which did not mention any repayment obligation to the Petitioner[13].

(6)  There was no evidence from Chen or Wen to explain what had taken place. In particular, the evidence of Chen could have explained if the loan from Huaxun had been repaid in any part by Zhiweilong[14].

THE APPEAL

12.  On 4 June 2022, Yeung, acting in person, filed a Notice of Appeal against the Bankruptcy Order, contending that the Judge had failed to give sufficient weight to her grounds of opposition to the Petition, or appreciate that her opposition was supported by contemporaneous evidence such as the Notice and the Proof of Repayment, and he ought to have concluded there was a bona fide dispute of the Debt.

13.  On 4 October 2023, Yeung, then legally represented, filed a Supplementary Notice of Appeal raising the following substantive grounds of appeal:

(1)  The Judge erred in effectively conducting a mini-trial on affirmations, which should not have been done in determining whether there was a bona fide dispute of the Debt on substantial grounds (“Ground 1”).

(2)  Even though the court may find that a debtor’s case to be that only conditional leave to defend would have been given had it been an Order 14 application (that is, the defence is shadowy, suspicious, a sham, or such a defence that the court is prepared very nearly to give judgment), the petition should still be dismissed (“Ground 2”).

(3)  In the present case, in light of the documentary evidence adduced by Yeung, namely, (i) the Notice, (ii) the Proof of Repayment, and (iii) the Receipt, the authenticity of which was not challenged, the Judge should not have effectively conducted a mini-trial on affirmations by “carefully [scrutinising]” such documentary evidence without any oral evidence and should not have summarily dismissed such documentary evidence as unreliable (“Ground 3”).

(4)  In agreeing with the Judge’s suggestion that the said documents might be analysed as novation, Yeung’s counsel should not have been taken to agree that this was the only way to analyse the matter (“Ground 4”).

(5)  Further and in any event, given that the novation point was raised only during the hearing, absence of evidence of consent to novation by Yeung or Zhiweilong should not have been taken summarily as evidence of no consent. Instead, such absence of evidence should mean that the court ought to find, even on the theory of novation, that there was a bona fide dispute of substance (“Ground 5”).

(6)  Against the aforesaid documentary evidence –

(a)  The Judge failed to accord any or any sufficient weight to the fact that the Petitioner (in liquidation) had no first-hand knowledge of the matters in dispute.

(b)  The Judge failed to accord any or any sufficient weight to the fact that the Petitioner had to rely on circumstantial evidence.

(c)  The Judge failed to accord any or any sufficient weight to the fact that there was a serious conflict between the documentary records relied upon by the Petitioner and the documentary evidence relied upon by Yeung, namely, (i) the Notice, (ii) the Proof of Repayment, and (iii) the Receipt.

(d)  In short, the Judge failed to accord any or any sufficient weight to the documentary evidence relied upon by Yeung and erred in according excessive weight to the other evidence or absence of evidence as if he had to arrive at a conclusive finding of what happened and what not, rather than properly discharging his duty simply to determine whether there was a bona fide dispute of substance (“Ground 6”).

DISCUSSION

(i)  Grounds 4 and 5

14.  We shall first deal with Grounds 4 and 5, which concern the proper characterisation of the Repayment Arrangement relied upon by Yeung to contend that there is a bona fide dispute of the Debt on substantial grounds.

15.  As earlier mentioned, the Judge took the view that the Repayment Arrangement ought properly to be characterised as a “novation” of the 2018 Loan Agreement involving “the discharge of the Loan and accrued interest owed by Yeung to the Petitioner and the creation of new obligation to replay the same by Zhiweilong to the Petitioner”[15]. However, as pointed out by the Judge, consent was an essential legal requirement for a novation, but there was no evidence of consent to the novation by Yeung or Zhiweilong. This constituted one of the reasons given by the Judge for rejecting Yeung’s defence to the Petition based on the Repayment Arrangement.

16.  In relation to Grounds 4 and 5, Mr Lam (on behalf of Yeung) complains that notwithstanding the fact that (i) the legal characterisation of the Repayment Arrangement as a novation was only raised by the Judge at the hearing of the Petition, and (ii) the Judge did not ask counsel to address the issue of whether there was evidence of the parties’ consent to the novation, he proceeded to hold or find, in the Judgment, that “there is no evidence of consent to the novation by Yeung or Zhiweilong. In particular, Yeung’s evidence suggested that she played no part in the Repayment Arrangement. Consent by Yeung, Zhiweilong and the Petitioner was an essential legal requirement for the novation”[16]. Mr Lam submits that –

(1)  none of the parties confirmed that a novation was the only proper way to characterise the Repayment Arrangement, and the Judge did not analyse the possibility that the Repayment Arrangement might instead be viewed as a “contract”; and

(2)  had the issue of consent been raised, the Judge might have been addressed as in §§17-19 below at least to show that there were substantial disputes on the issue of consent[17].

17.  Mr Lam submits that the Repayment Arrangement, instead of being characterised as a novation, may properly be regarded as a “contract” between Yeung and the Petitioner, under which:

(1)  Yeung agreed that her partner (Chen)’s company (Huaxun) would advance a sum of RMB30 million to Wen’s company (Zhiweilong); and

(2)  in consideration for Yeung’s aforesaid agreement, the Petitioner should deduct from the RMB30 million the amount of the Loan and interest thereon, and thus the Loan would be deemed to have been fully repaid[18].

18.  Mr Lam further submits that the advancement of the sum of RMB30 million by Huaxun to Zhiweilong would be evidence of Yeung’s consent to the contract because otherwise, her partner (Chen) would not have caused Huaxun to advance RMB30 million Zhiweilong. Alternatively, says Mr Lam, if the Repayment Arrangement should be treated as being a novation among Yeung, the Petitioner, Lamtex and Huaxun, (i) the said advancement would be evidence of Yeung’s consent and Huaxun’s consent to the novation, and (ii) insofar as consent by Zhiweilong was necessary for the novation, given that Zhiweilong was Wen’s company, there should be no question that Wen, who signed the Notice and the Proof of Repayment, did consent to the novation on behalf of Zhiweilong[19].

19.  Mr Lam also submits that Wen had actual or apparent authority to act on behalf of the Petitioner to enter into the said contract or novation:

(1)  As regards actual authority, Mr Lam relies on the fact that –

(a)  Wen was at the time the chairman and had been an executive director of Lamtex, the 100% holding company of the Petitioner; and

(b)  Wen’s wife was a shareholder of Lamtex, and Wu Xiaolin (who entered into the 2018 Loan Agreement on behalf of the Petitioner) was Wen’s nephew.

(2)  As regards apparent authority, Mr Lam relies on the fact that –

(a)  both the Notice and the Proof of Repayment bore the company chop of the Petitioner;

(b)  Wen was at the time the chairman and had been an executive director of Lamtex, the 100% holding company of the Petitioner; and

(c)  Wen’s wife was a shareholder of Lamtex, and Wu Xiaolin (who entered into the 2018 Loan Agreement on behalf of the Petitioner) was Wen’s nephew[20].

20.  We do not accept the above submissions of Mr Lam, for the following reasons:

(1)  Mr Lam’s complaint that the issue concerning the proper legal characterisation of the Repayment Arrangement was raised by the Judge only at the hearing of the Petition without any forewarning has no merit. Yeung was represented by solicitors and counsel in the proceedings below. She put forward the Repayment Arrangement as the basis to contend that there was a bona fide dispute of the Debt on substantial grounds. It ought to have been obvious to her lawyers that the proper legal characterisation of the Repayment Arrangement was a matter relevant to the validity of her defence to the Petition, and something which ought to be addressed even without any prompting by the Judge.

(2)  At the hearing, Yeung’s counsel agreed with the Judge’s view that the Repayment Arrangement should be regarded as a novation of the 2018 Loan Agreement[21]. He did not suggest that the Repayment Arrangement ought instead to be regarded as a contract between Yeung and the Petitioner. It lies ill in her mouth now to complain that the Judge failed to consider that possibility.

(3)  In any event, regardless of whether the Repayment Arrangement ought properly to be regarded as a novation or a contract, the same issue concerning Yeung and Zhiweilong’s consent to it would arise. Bearing in mind Yeung’s evidence that she played no part in the Repayment Arrangement, Yeung, as advised by her lawyers, ought to have adduced evidence on the issue of consent in order to lay the necessary foundation for her defence to the Petition.

(4)  Even if, for the sake of argument, the Repayment Arrangement ought to be regarded as a contract between Yeung and the Petitioner as argued by Mr Lam, there was no evidence that Wen had any authority to enter into the Repayment Arrangement on behalf of the Petitioner.

(a)  The fact that (i) Wen was the chairman and an executive director of the ultimate holding company of the Petitioner, and/or (ii) Wen’s wife was a shareholder of the Petitioner and his nephew entered into the 2018 Loan Agreement on behalf of the Petitioner, plainly cannot constitute any evidence that Wen had actual authority of the Petitioner to enter into the alleged contract.

(b)  In so far as apparent authority is concerned, it has to be shown that Wen was held out or represented by the Petitioner as having authority to enter into the Repayment Arrangement on its behalf. The matters relied upon by Mr Lam, namely, (i) Wen was the chairman and an executive director of the ultimate holding company of the Petitioner, (ii) Wen’s wife was a shareholder of the Petitioner and his nephew entered into the 2018 Loan Agreement, and (iii) the Notice and Proof of Repayment bore the company chop of the Petitioner, are plainly not sufficient to clothe Wen with the apparent authority of the Petitioner to enter into the Repayment Arrangement. There was no evidence as to the identity of the person who applied the Petitioner’s company chop on the Notice and Proof of Repayment, or the circumstances in which that person came into possession of the company chop, or that person’s authority to use the Petitioner’s company chop.

(c)  Mr Lam refers the Court to the judgment of Louis Chan J in TS Office System Ltd v Wing Kee Produce Ltd [2015] 1 HKLRD 479, at §32, in support of the proposition that “[c]ompany chops may constitute representation of authority of the principal”. What Louis Chan J said at §32 of his judgment was this: “The defendant’s permission for Ms Wong to use the defendant’s rubber chop was a representation to 3^rd parties that she had authority to act for the defendant in situations where the use of the defendant’s rubber chop would suffice”. That statement must, however, be read together with the immediately preceding §31, where the learned judge said: “There are however situations where the representation is by conduct or by permitting the agent to assume a particular position. The representation thus may not be clear as to the kind of contracts that it covers. In such case, the facts and circumstances of the case have to be considered to determine the kind of contracts that are covered by the apparent authority.” It is clear that much more is required to establish apparent authority than the mere fact that a company’s rubber chop has been applied on a document. TS Office System Ltd cannot be read as establishing any general proposition that a person who applies a company’s rubber chop on a written agreement has apparent authority to bind the company to the terms of that agreement.

(5)  In our view, in the absence of any evidence that Wen had the Petitioner’s authority (actual or apparent) to enter into the Repayment Arrangement on its behalf, the Repayment Arrangement, whether viewed as a novation or a contract, plainly cannot give rise to a bona fide dispute of the Debt on substantial grounds. This is so quite apart from the Judge’s view that Yeung’s case, on the facts, was “unbelievable”.

21.  In short, Grounds 4 and 5 are rejected.

(ii)  Grounds 6

22.  Ground 6 can be disposed of briefly. Under these grounds, Yeung effectively seeks to rehearse her arguments on the evidence which were rejected by the Judge. As noted above, Yeung contends that the Judge failed to accord any or any sufficient weight to the fact that:

(1)  the Petitioner had no first-hand knowledge of the matters in dispute;

(2)  the Petitioner had to rely on circumstantial evidence; and

(3)  there was a serious conflict between the documentary records relied upon by the Petitioner and the documentary evidence relied upon by her.

23.  In his written submissions, Mr Lam tries to explain away the contradictions or inconsistencies between (i) the documentary evidence and/or Yeung’s conduct, and (ii) Yeung’s case on the Repayment Arrangement[22], which it is not necessary to set out in this judgment[23].

24.  In the present case, the Judge examined the evidence and materials before him with care, and clearly explained why he accepted the evidence proffered by the Petitioner and rejected Yeung’s defence to the Petition based on the Repayment Arrangement. We have summarised the Judge’s reasoning in §§10 and 11 above, and do not propose to repeat the same here. The Judge’s conclusion that Yeung’s case was “unbelievable” and thus she had failed to raise a bona fide dispute of the Debt on substantial grounds was an evaluative judgment based on the evidence and findings of fact made by the Judge, even though the findings were based on affirmation evidence and contemporaneous documents rather than oral evidence.

25.  The Court of Appeal will not lightly interfere with such conclusion of the Judge unless he erred in law, or was under a misapprehension of material facts, or failed to take relevant matters into account, or took irrelevant matters into account, or his decision was plainly wrong. We are satisfied that the Judge did not make any error of principle or approach, or any palpable error in his decision. The Judge’s conclusion that Yeung had failed to raise a bona fide dispute of the Debt on substantial grounds was one which was fairly open to him. We see no basis to interfere in the Judge’s decision in the present case.

(iii)  Grounds 1, 2 and 3

26.  Under these grounds, Yeung complains that the Judge erred in his approach to the determination of the Petition, in that, instead of deciding whether there was a bona fide dispute of the Debt on substantial grounds, he conducted a mini-trial on affirmations as if he had to arrive at a conclusive finding of whether she was indebted to the Petitioner for the amount of the Loan and interest thereon.

27.  These grounds of appeal have no merit. The Judge set out the applicable principles at §§6 to 8 of the Judgment. Mr Lam has not raised any complaints about the principles stated by the Judge. While it is true that the Judge examined the evidence before him in some detail at §§27 to 42 of the Judgment, we are satisfied that the Judge did so in order to decide whether Yeung had succeeded in raising a bona fide dispute of the Debt on substantial grounds, and not to make any conclusive factual findings. The Judge came to the conclusion that Yeung’s case was “unbelievable” when viewed against the undisputed or indisputable evidence, and thus he was not satisfied that there was a bona fide dispute of the Debt on substantial grounds. As earlier mentioned, we are of the view that on the evidence and materials before him, it was open to the Judge to come to such conclusion.

28.  The general complaints raised in Yeung’s original Notice of Appeal add nothing of substance to the grounds raised in the Supplemental Notice of Appeal, and do not require separate consideration.

29.  In all, none of the grounds of appeal raised by Yeung is valid or has merit.

DISPOSITION

30.  Yeung’s appeal is dismissed with costs to the Petitioner, to be summarily assessed on a party and party basis. Yeung shall have leave to file and serve a statement of objections (limited to 2 pages) to the Petitioner’s Statement of Costs dated 2 April 2024 within 14 days from the date of this judgment.

31.  We do not accede to Ms Lee’s application for an order of indemnity costs against Yeung, for the following reasons:

(1)  Although we have dismissed Yeung’s appeal, we do not consider that the merits of her appeal are so lacking that an order for indemnity costs is justified.

(2)  The case of Re SY Engineering Co Ltd (CACV 1896/2001, unreported, 27 February 2002) relied upon by Ms Lee does not assist her argument. That case concerned an appeal brought by a company against a winding up order made against it. The appeal was dismissed, and the Court of Appeal considered that the appeal was entirely devoid of merit and it was appropriate to order costs in the petitioner’s favour on an indemnity basis. The Court of Appeal also said that indemnity costs are appropriate where a company unsuccessfully appealed from a winding-up order. As pointed out by Le Pichon JA at §20 of her judgment in that case, as a matter of practice, where the company is the only appellant, security for costs must be given from an outside source. The reason is that it is not just that any costs occasioned by an unsuccessful appeal from a winding-up order should be thrown upon the assets of the company to the prejudice of its creditors. Where the security paid in is not sufficient to cover the costs of the petitioner on an indemnity basis, the shortfall should be borne by the outside source (a contributory in that case). We do not read the judgment of the Court of Appeal in SY Engineering Co Ltd as laying down any general proposition that an order for indemnity costs should always be made in favour of a petitioner/creditor where a company unsuccessfully appealed from a winding-up order. In any event, the present case does not concern a winding-up order against a company. The fact that the Petitioner may not recover all its costs incurred in resisting the present appeal from Yeung’s estate would not prejudice her creditors, while the fact that the Petitioner itself is in liquidation cannot be a good reason for making an indemnity costs order in its favour.

Mr Lam Chin Ching, Gary, instructed by Edwin Yun & Co, for the Debtor (Appellant)

Ms Connie Lee, instructed by Michael Li & Co, for the Petitioning Creditor (Respondent)

The Official Receiver, absent

CACV 239/2022

[2023] HKCA 156

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 239 OF 2022

(ON APPEAL FROM HCB NO 5026 OF 2021)

____________

____________

_________________

DECISION

_________________

Hon G Lam JA (giving the Decision of the Court):

1.  On 18 May 2022 Anthony Chan J made a bankruptcy order against the debtor, on the petition of the petitioner. The debtor has lodged an appeal against that order. By summons filed in this court on 15 September 2022, the debtor applies for (1) leave to adduce further evidence in support of her appeal, and (2) leave to amend her Notice of Appeal.

2.  Both parties have lodged written submissions. Despite being given leave to do so, the debtor did not file any reply to the petitioner’s submissions in opposition.  Having considered the written materials, we consider it appropriate for the applications to be determined on paper without an oral hearing.  This is our decision on the debtor’s applications.  For convenience, unless otherwise stated, the abbreviations used by the Judge in his judgment dated 18 May 2022 (“Judgment”)[1] will be adopted below.

Background

3.  The petitioner was a licensed money lender.  It is not in dispute that pursuant to a loan agreement dated 26 April 2017, which was extended by a further agreement dated 26 April 2018 (i.e. the 2018 Agreement), a loan of HK$14,000,000 (i.e. the Loan) was advanced by the petitioner to the debtor.

4.  On 18 March 2021, the petitioner served a statutory demand on the debtor, demanding repayment of the sum of HK$17,126,410.96 (i.e. the Debt), consisting of (1) the entire principal amount of the Loan, and (2) interest accrued on the Loan at 11% p.a. from 25 April 2019 to 5 February 2021 in the sum of HK$3,126,410.96.

5.  On 2 September 2021, the petitioner presented the bankruptcy petition against the debtor.

6.  The debtor filed two affirmations below in opposition to the petition.  In her first affirmation dated 30 November 2021, she claimed that the Loan had already been discharged by what she called the “Repayment Arrangement” and that she was therefore no longer liable.  As succinctly summarised at §§9 to 14 of the Judgment, the debtor’s case is as follows:

“9.  Yeung’s case is that the Debt had already been repaid.  Her evidence is that she is a housewife and the Loan was taken out at the instructions of her partner, Mr Chen Huawei (“Chen”), who is the father of her 4 children.  The Loan was obtained from the Petitioner because Chen knew Mr Wen Jialong (“Wen”).  Wen was a director of Lamtex Holdings Ltd (now in liquidation) (“Lamtex”), a Hong Kong listed company.  The Petitioner was indirectly wholly owned by Lamtex.

10.  The repayment of the Debt was made through a separate business arrangement negotiated between Chen and Wen in around mid-2018 (“Repayment Arrangement”). It is not in dispute that at the time Wen was an executive director and board chairman of Lamtex.  Wen resigned from such positions with effect from 1 June 2018.

11.  Under the Repayment Arrangement, if Chen’s company, Shenzhen Huaxun Weiye Real Estate Development Co Ltd (“Huaxun”), made a loan of RMB 30 million to Wen’s company, Shenzhen Zhiweilong Shiye Co Ltd (“Zhiweilong”), on or before 30 June 2018, then: (i) the Loan together with accrued interest would be “deducted” from the RMB 30 million (see para 39 below) and deemed fully repaid; and (ii) the Petitioner would seek repayment of the Loan from Zhiweilong instead.

12.  Yeung had produced 2 documents as evidence of the Repayment Arrangement, one “告知函” (“Notice”) and a “付清借款證明” (“Proof of Repayment”), both dated 30 May 2018 and addressed to Yeung.  On their face, both documents bore the company chops of the Petitioner and Lamtex, as well as Wen’s signature.  In addition, there are Mainland bank documents and loan receipts confirming the transfer of RMB 30 million by Huazun to Zhiweilong on 19 June 2018.

13.  There is also a loan receipt dated 19 June 2018 (“Receipt”) issued by Zhiweilong, which bore its company chop and Wen’s signature.

14.  By way of the Repayment Arrangement, the Loan and accrued interest were deemed fully repaid.”

7.  On 18 May 2022, on the hearing of the petition, the Judge held that there was no bona fide dispute on substantial grounds of the Debt, and made the usual bankruptcy order with costs.  The Judge held that there was no bona fide dispute raised by the alleged existence of Repayment Arrangement because he was of the view, inter alia, that:

(1)  The conduct of the debtor was inconsistent with settlement of the Debt.  Specifically, after the Debt was allegedly settled by the Repayment Arrangement, the debtor still paid two instalments of interest to the petitioner in the sum of HK$840,000 on 25 June 2018 and HK$385,000 on 25 January 2019 respectively.  Further, the debtor signed an audit confirmation on about 21 February 2019, confirming that she still owed the petitioner a total sum of HK$14,151,890.41 as of 31 December 2018 (see §29 of the Judgment).

(2)  The existence of the Debt was further acknowledged by the debtor when she signed the 2019 Loan Agreement in April 2019 (see §32 of the Judgment).  Any suggestion that the debtor signed the 2019 Loan Agreement without finding out if the Debt was deemed repaid is not believable (see §33 of the Judgment).

(3)  The debtor did not respond at all to the many demand letters or the statutory demand from the petitioner, until after the petition was filed in early September 2021 (see §34 of the Judgment).

(4)  There was also no credible explanation for the considerable delay on the debtor’s part in asserting that the Debt had been repaid.  Even if the debtor had required time to gather evidence in opposition to the petition, she should have reminded the petitioner about the Repayment Arrangement on the first available opportunity.  The debtor did not do so. Instead, her solicitors only asked for the matter to be referred to arbitration by relying on the 2019 Loan Agreement which contradicted the Repayment Arrangement.  Further, it was not until the debtor filed her first affirmation dated 30 November 2021 that the allegation of the Repayment Arrangement was made for the first time (see §§26 and 35 of the Judgment).

(5)  Finally, the accounting records of the petitioner also showed that the Loan remained in its books with the debtor’s name as the borrower (see §42 of the Judgment).

8.  As for the Notice, the Proof of Repayment and the Receipt, the Judge was of the view that they did not outweigh the evidence and inference that the Debt remained due and owing to the petitioner (see §36 of the Judgment).  The Judge was also of the view that these documents were not reliable evidence on which to infer the existence of the Repayment Arrangement because, inter alia:

(1)  Wen, who negotiated the Repayment Arrangement with Chen, was not a director of the petitioner at the time the Repayment Arrangement was reached.  He was merely a director of the ultimate parent company of the petitioner, i.e. Lamtex (see §37 of the Judgment).

(2)  Further, the Repayment Arrangement was also commercially unusual in that it was an arrangement whereby “a director of a parent company was apparently using an asset of its subsidiary (the Loan) for the purpose of his own company” (see §37 of the Judgment).

(3)  There was no explanation why the Proof of Repayment was issued before the loan was released from Huaxun to Zhiweilong (see §38 of the Judgment).

(4)  There was an inherent conflict between (a) the Notice and the Proof of Payment, which suggested that the repayment obligations to the petitioner would be assumed by Zhiweilong, and (b) the Receipt, which did not mention any repayment obligation to the petitioner (see §40 of the Judgment).

(5)  There was no evidence from Chen or Wen to explain what had taken place.  In particular, the evidence of Chen could have explained if the loan from Huaxun had been repaid in any part by Zhiweilong (see §41 of the Judgment).

9.  On 4 June 2022, the debtor, then acting in person, filed her Notice of Appeal, contending that the Judge had failed to give sufficient weight to her grounds of opposition to the petition, that he failed to appreciate that her opposition was supported by contemporaneous evidence such as the Notice and the Proof of Repayment, and that he ought to have concluded there was a bona fide dispute as to the Debt and should not have made the bankruptcy order against her.

The New Evidence Application

10.  By summons dated 15 September 2022, the debtor applies to adduce the Affirmation of Mr. Ouyang Yayong (“Ouyang Affirmation”), the Affirmation of Mr. Yang Weixiong (“Yang Affirmation”) and the Affirmation of Mr. Wen Jialong (“Wen Affirmation”) (collectively, the “New Affirmations”) as new evidence in support of her appeal against the bankruptcy order.  Counsel for the debtor have confirmed that there is no application to adduce the debtor’s own affirmation dated 15 September 2022 supporting the summons as new evidence for the appeal.

11.  It is well established that there are three conditions as set out in Ladd v Marshall [1954] 1 WLR 1489 at 1491 for determining whether new evidence should be admitted for an appeal, namely: (1) the evidence could not have been obtained with reasonable diligence for use at the hearing below; (2) the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and (3) the evidence must be such as is presumably to be believed or it must be apparently credible, though it need not be incontrovertible.  All three conditions must be satisfied for new evidence to be admitted on appeal.

12.  We propose to deal with the Ouyang Affirmation and the Yang Affirmation first.

13.  As mentioned above, one of the matters the Judge relied on against the debtor was the fact that she paid interest to the petitioner on 25 January 2019.  That interest payment was recorded in a letter issued by Messr. Peter Cheung & Co to the petitioner (“Letter”) dated 31 January 2019.

14.  Mr. Ouyang’s and Mr. Yang’s evidence is intended to cast doubt upon the accuracy of the contents of the Letter. According to their affirmations:

(1)  Mr. Ouyang and Mr. Yang are friends of the debtor.  They had both previously borrowed from the petitioner.  They did not repay any part of the outstanding loans due to the petitioner.

(2)  In July 2022, Mr. Ouyang found out that the debtor was bankrupted by the petitioner.  As he was apprehensive that the petitioner might take legal action against himself to recover the outstanding loan, he decided to reach out to the debtor to inquire about the situation. Consequently, he was shown the Letter by the debtor.

(3)  According to the Letter, Messr. Peter Cheung & Co had on behalf of the petitioner successfully collected an instalment of interest from Mr. Ouyang in the sum of HK$385,000 which was allegedly due on 25 January 2019.

(4)  However, Mr. Ouyang denied having repaid any part of his loan (including interest) to the petitioner.  He also claimed that he was unable to identify the payment of HK$385,000 to the petitioner in his bank records.

(5)  In August 2022, the debtor reached out to Mr. Yang, whose name also appeared on the Letter.  According to the Letter, Messr. Peter Cheung & Co had also on behalf of the petitioner successfully collected an instalment of interest from Mr. Yang in the sum of HK$560,000 which was allegedly due on 19 January 2019.

(6)  Like Mr. Ouyang, Mr. Yang denied having repaid any part of his loan (including interest) to the petitioner.  He also claimed that he was unable to identify the payment of HK$560,000 to the petitioner in his bank records.

15.  Mr. Tang (together with Mr. Chow) submitted on behalf of the debtor that the Ladd v Marshall criteria are satisfied because:

(1)  It is the debtor’s evidence that but for her exchanges with Mr. Ouyang and Mr. Yang after the hearing of the petition as set out above, she would not have suspected the Letter contained any material inaccuracy as regards the payment of interest by various persons to the petitioner.  This was especially so given that the Letter was issued by a professional firm of solicitors, and the debtor had therefore no reason to doubt the veracity of its contents.  Mr. Ouyang’s and Mr. Yang’s evidence is therefore evidence that could not have been obtained with reasonable diligence for use at the hearing below.

(2)  Further, had it been known that the Letter contained material inaccuracies as regards the payment of interest, this would have cast doubt on the suggestion that the debtor had paid interest to the petitioner in January 2019 as recorded in the Letter; in turn, this would have undermined the Judge’s reasoning.  Accordingly, it was submitted that Mr. Ouyang’s and Mr. Yang’s evidence, if given, would probably have an important influence on the result of the case.

(3)  It was also submitted that the evidence is credible because Mr. Ouyang’s and Mr. Yang’s evidence is first-hand and direct evidence.

16.  We are prepared to proceed on the basis (without deciding) that the Ouyang Affirmation and the Yang Affirmation are evidence that could not have been obtained with reasonable diligence for use at the hearing below.  Even so, we do not agree that they would, if admitted, probably have any important influence on the outcome.

17.  As is evident from the summary above, Mr. Ouyang’s and Mr. Yang’s evidence does not deal with the issue of whether the debtor had made any payment of interest to the petitioner on her Loan. Rather, their evidence is exclusively concerned with whether they themselves made any payment of interest on their loans as recorded in the Letter.  As such, Mr. Ouyang and Mr. Yang’s evidence is unlikely to have any important influence on the outcome of the case.

18.  The materiality of Mr. Ouyang and Mr. Yang’s evidence must also be viewed in the context of the rest of the evidence before the Court.  Notably:

(1)  The debtor did not seek to file evidence to deny that she had paid interest to the petitioner in January 2019 or to dispute the accuracy of the content of the Letter in so far as it concerned her.

(2)  It is only in the supporting affirmation for the summons that the debtor says for the first time that she “had no recollection of the said interest payment”.  This is a late assertion unsupported by any documentary evidence (e.g. the debtor’s bank records showing the lack of fund flow to the petitioner at the material time).  In any event, she no longer seeks to adduce her own supporting affirmation as new evidence. As such, the position will remain on appeal that there is no evidence from the debtor denying that she had paid interest to the petitioner as recorded in the Letter.

19.  For these reasons, we take the view that Condition 2 is not satisfied.  We decline to grant leave for the Ouyang Affirmation and the Yang Affirmation to be adduced in the debtor’s appeal.

20.  This leaves the Wen Affirmation.  Wen was the former chairman and a director of Lamtex, which indirectly and wholly owned the petitioner.  According to the debtor, Wen was the person who negotiated the Repayment Arrangement with Chen.  The Wen Affirmation deposes to, inter ala, the following matters:

(1)  The surrounding circumstances of the negotiation and conclusion of the Repayment Arrangement.  Relevantly, it is Wen’s evidence that the Repayment Arrangement was reached after obtaining the consent of the director of the petitioner.

(2)  The circumstances in which Wen procured the debtor to sign the 2019 Loan Agreement.  It is Wen’s evidence that after the Repayment Arrangement was reached, he resigned as the chairman of Lamtex, and the petitioner underwent significant personnel changes.  As the new staff of the petitioner was not aware of the Repayment Arrangement, the petitioner at one point told Wen that it would sue the debtor unless documentary proof for the Repayment Arrangement may be furnished.  To buy time for the documentary proof of the Repayment Arrangement to be located, Wen procured the debtor to sign the 2019 Loan Agreement to extend the 2018 Agreement for the time being purely as a formality to avoid the risk of litigation.

(3)  The reason why the debtor paid interest to the petitioner in June 2018, despite the settlement of the Debt by the Repayment Arrangement.  Wen explained that it was the practice of the petitioner to require borrowers to hand over pre‑signed cheques to ensure interest was paid in a timely manner.  In accordance with this practice, at the time when the 2018 Agreement was signed by the debtor, she handed over a pre-signed cheque in the sum of HK$840,000 to the petitioner.  This explained why such sum was paid as interest to the petitioner, despite the final settlement of the Debt.

21.  Counsel submitted that the debtor should be granted leave to adduce the Wen Affirmation because:

(1)  It is the debtor’s evidence that whilst she was initially able to contact Wen, Wen eventually became incommunicado prior to the hearing of the petition.  This was despite the debtor’s efforts to reach Wen through his telephone number and WeChat.  The debtor had also physically travelled to Shenzhen to locate Wen at his various known addresses in March / April 2022, to no avail.  It was only after the bankruptcy order was made against her that she was able to establish contact with Wen and to procure Wen to make the Wen Affirmation. Consistent with the above, it is Wen’s evidence that he thought that the documentary evidence he provided to the debtor should be sufficient to oppose the petition, and therefore, apart the earlier contacts he had with the debtor, he did not pick up any further phone calls from the debtor.  Based on the foregoing, it was submitted that Wen’s evidence is evidence that could not have been obtained with reasonable diligence for use at the hearing below.

(2)  Further, the Judge expressly acknowledged at §41 of the Judgment that Chen’s evidence in relation to the Repayment Arrangement could shed considerable light on its veracity.  As a matter of logic, the same can be said of the evidence of Wen, since Wen had direct knowledge of the Repayment Arrangement and was instrumental in its implementation.  As such, Wen’s evidence is evidence that, if given, would probably have an important influence on the result of the case.

(3)  Finally, Wen’s evidence is credible because it is corroborated by the Notice, the Proof of Repayment and the Receipt.

22.  We do not agree with Mr. Tang that Condition 1 of Ladd v Marshall is satisfied.  On the facts before the Court, it is plain that Wen’s evidence could have been obtained by the debtor for use at the hearing below, had she exercised reasonable diligence to obtain it.  In particular:

(1)  Even if Wen became uncontactable as claimed by the debtor, she had had ample opportunity to gather all necessary evidence from him before then.

(2)  The statutory demand was served upon the debtor on 18 March 2021.  The petition was presented against the debtor on 2 September 2021.  It was not until 30 November 2021 that the debtor filed her evidence in opposition.

(3)  The debtor did not reveal exactly when Wen became uncontactable.  However, according to the debtor’s supporting affirmation, she was still able to contact Wen around the time after the Petition was filed on 2 September 2021.

(4)  The debtor had sufficient opportunity to gather all necessary evidence from Wen, had she proceeded with reasonable diligence to do so.  There is no suggestion that even if requested, Wen would have refused to provide the necessary evidence sought by the debtor or to make an affirmation on her behalf.

(5)  Despite the opportunity to gather evidence from Wen, the debtor did not do so.  Instead, she simply chose to rely on Wen to resolve the dispute she had with the petitioner.

23.  We are of the view that the debtor has failed to establish that even had she exercised reasonable diligence, she would not have been able to obtain, for use at the hearing below, the evidence that she now intends to adduce by way of the Wen Affirmation.

24.  In addition, particular aspects of Wen’s evidence also fail to satisfy Condition 1 because they are clearly within the personal knowledge of the debtor but she did not seek to adduce evidence of them below. For example, the debtor should herself have been able to explain why she paid HK$840,000 as interest to the petitioner in June 2018, and to give evidence on the circumstances in which Wen procured her to sign the 2019 Loan Agreement. These matters, which are dealt with in the Wen Affirmation, are matters on which evidence could have been given by the debtor herself.

25.  In this regard, we also observe that the debtor is not at all consistent about when she came to know of the matters raised in the Wen Affirmation.  At various points in her evidence, she claimed that the Wen Affirmation contains matters which are not known to her prior to the hearing of the petition.  However, in her affirmation in reply dated 10 October 2022, at paragraph 6, she said “its contents were known to [her] prior to the hearing of the Petition”.  Thus it would appear that, even on the debtor’s own case, she could have given the same evidence now contained in Wen Affirmation for use at the hearing below.

26.  In any event, we have considerable reservations about the debtor’s suggestion that she had lost contact with Wen after her earlier communications with him.  Notwithstanding that she was legally represented, the debtor had never mentioned in the court below that she had contacted Wen to give evidence on her behalf but was unable to do so.  Further, in her supporting affirmation, the debtor claimed that she had tried contacting Wen through “his telephone number and WeChat”.  But she has, without any explanation, not produced any WeChat records evidencing such allegedly unsuccessful attempts before the hearing of the petition.  This failure is telling because the debtor did produce the records of her communication with Wen by WeChat, when she allegedly re-established contact with him after the hearing of the petition.

27.  Accordingly, it is not necessary for us to address whether Conditions 2 and 3 of Ladd v Marshall are satisfied. But we may observe that Mr Wen’s evidence does not sit comfortably with Receipt dated 19 June 2018 and signed by him on behalf of Zhiweilong (exhibited by the debtor below as “YM-15”) which stated that the entire loan of Rmb 30 million would be repaid by Zhiweilong when the loan matured, without referring to any set off of the HK$14 million which was supposedly to be paid to the petitioner instead of Huaxun.

28.  We decline to grant leave for the Wen Affirmation to be adduced in the debtor’s appeal.

The Amendment Application

29.  The debtor concedes that the application for the amendment of the Notice of Appeal should stand or fall with the application to adduce new evidence in her appeal.  In the light of our conclusions above, the debtor’s application for the amendment of the Notice of Appeal is dismissed.

Disposition

30.  The debtor’s summons is therefore dismissed.

31.  We make an order nisi that the debtor pay the petitioner the costs of these applications, assessed in the gross sum of $200,000.

[1]  [2022] HKCFI 1472.