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FACV No. 13 of 2022
[2023] HKCFA 9
IN THE COURT OF FINAL APPEAL OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
FINAL APPEAL NO. 13 of 2022 (CIVIL)
(ON APPEAL FROM CACV NO. 393 of 2021)
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BETWEEN
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Re: GUY KWOK-HUNG LAM (林國雄) |
Respondent |
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(Debtor) |
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and |
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Ex Parte: TOR ASIA CREDIT MASTER FUND LP |
Appellant |
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(Creditor / |
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Petitioner) |
___________________________
| Before: |
Chief Justice Cheung, Mr Justice Ribeiro PJ, |
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Mr Justice Fok PJ, Mr Justice Lam PJ and |
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Mr Justice French NPJ |
| Date of Hearing: |
2 March 2023 |
| Date of Judgment: |
4 May 2023 |
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J U D G M E N T
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Chief Justice Cheung:
1. I agree with the judgment of Mr Justice French NPJ.
Mr Justice Ribeiro PJ:
2. I agree with the judgment of Mr Justice French NPJ.
Mr Justice Fok PJ:
3. I agree with the judgment of Mr Justice French NPJ.
Mr Justice Lam PJ:
4. I agree with the judgment of Mr Justice French NPJ.
Mr Justice French NPJ:
Introduction
5. This appeal arises out of a bankruptcy order made on 21 July 2021 against the Respondent pursuant to a creditor’s petition presented by the Appellant in the Court of First Instance (“CFI”) on 15 June 2020. The Respondent said the debt alleged by the Appellant was disputed and should be determined by a New York court under an exclusive jurisdiction clause (“EJC”) in the contract between him and the Appellant which gave rise to the alleged debt. The CFI judge (“Judge”) held that the Respondent had failed to show that there was a bona fide dispute on substantial grounds in respect of the debt and made a bankruptcy order against the Respondent (“CFI Judgment”).[1] The Court of Appeal (“CA”) set aside the orders made by the CFI and dismissed the petition on the basis of the EJC (“CA Judgment”).[2] The Appellant now appeals against the decision of the CA.
Factual background
6. The Appellant is an exempted limited partnership formed and registered in the Cayman Islands. The Respondent is a solicitor qualified to practice in Hong Kong. He is the founder of two groups of companies providing aged care services on the Chinese Mainland and in the United States, referred to in this judgment as CP China and CP US respectively.
7. On 11 July 2017, the Appellant entered into a Credit and Guaranty Agreement (“Credit Agreement”) with the ultimate holding company of CP China, CP Global Inc (the “Borrower”). Pursuant to that agreement, which named the Respondent as personal guarantor, the Appellant advanced term loans totalling US$29,500,000 to the Borrower.
8. There were various securities executed in favour of the Appellant. It is not necessary to set out their detail here. Under the Respondent’s personal guarantee, in cl 10.01 of the Credit Agreement, he agreed to guarantee, as primary obligor, the payment in full of all amounts due and owed by the Borrower without any demand or notice.
9. The Credit Agreement contained the EJC in cl 12.16, which provided:[3]
“12.16 Governing Law
(a) This Agreement and the other Loan Documents and the rights and obligations of the parties hereto and thereto shall be construed in accordance with and governed by the laws of the State of New York.
(b) Each party hereto hereby submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York and of the Supreme Court of the State of New York sitting in New York County (including its Appellate Division), and of any other appellate court in the State of New York, for the purposes of all legal proceedings arising out of or relating to this Loan Agreement or the other Loan Documents or the transactions contemplated hereby or thereby; provided that any suit seeking enforcement against any Collateral or other Property may be brought, at the option of Lender if in the courts of any jurisdiction where such Property is located to the extent such courts have jurisdiction over the relevant Loan Party or over such Collateral or other Property. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.”
10. There were three amendments to the Credit Agreement each of which continued the EJC in effect. It is not necessary for present purposes to descend to the detail of those amendments.
11. Before considering the Judge’s decision, it is convenient to set out the relevant statutory framework.
Statutory framework
12. Bankruptcy jurisdiction is conferred on the CFI by s 97 of the Bankruptcy Ordinance (Cap 6) which relevantly provides:
“Jurisdiction
97. General power of court
(1) Subject to the provisions of this Ordinance, the court shall have full power to decide all questions of priorities and all other questions whatsoever, whether of law or fact, which may arise in any case of bankruptcy coming within the cognizance of the court or which the court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case.”
The term “court” is defined in s 2 of the Bankruptcy Ordinance as “the Court of First Instance sitting in its bankruptcy jurisdiction.”
13. As appears later in these reasons there is a distinction to be drawn between the jurisdiction of the CFI and the powers conferred on it.
14. Relevant provisions of the Bankruptcy Ordinance and Bankruptcy Rules (Cap 6A) are as follows:
Bankruptcy Ordinance
“Part II
Proceedings from Bankruptcy Petition to Discharge
3. Who may present a bankruptcy petition
(1) A petition for a bankruptcy order to be made against a debtor may be presented to the court–
(a) by one of the debtor’s creditors or jointly by more than one of them;
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(2) Subject to the following provisions of this Part, the court may make a bankruptcy order on any such petition.”
There are a number of conditions to be satisfied before the court can exercise its bankruptcy jurisdiction.
“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.
(2) The reference in subsection (1)(c) to a debtor carrying on business includes—
(a) the carrying on of business by a firm or partnership of which the debtor is a member; and
(b) the carrying on of business by an agent or manager for the debtor or for such a firm or partnership.
5. Other preliminary conditions
(1) Where a bankruptcy petition relating to a debtor is presented by a person who is entitled to present a petition under 2 or more paragraphs of section 3(1), the petition is to be treated for the purposes of this Part as a petition under whichever of those paragraphs is specified in the petition.
(2) A bankruptcy petition shall not be withdrawn without the leave of the court.
(3) The court has a general power, if it appears to it appropriate to do so on the grounds that there has been a contravention of rules or for any other reason, to dismiss a bankruptcy petition or to stay such a petition and, where it stays such a petition, it may do so on such terms and conditions as it thinks fit.
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6. Grounds of creditor’s petition
(1) A creditor’s petition must be in respect of one or more debts owed by the debtor, and the petitioning creditor or each of the petitioning creditors must be a person to whom the debt or (as the case may be) at least one of the debts is owed.
(2) Subject to sections 6A to 6C, a creditor’s petition may be presented to the court in respect of a debt or debts if, but only if, at the time the petition is presented—
(a) the amount of the debt, or the aggregate amount of the debts, is equal to or exceeds $10,000 or a prescribed amount;
(b) the debt, or each of the debts, is for a liquidated sum payable to the petitioning creditor, or one or more of the petitioning creditors, either immediately or at some certain, future time, and is unsecured;
(c) the debt, or each of the debts, is a debt which the debtor appears either to be unable to pay or to have no reasonable prospect of being able to pay; and
(d) there is no outstanding application to set aside a statutory demand served under section 6A in respect of the debt or any of the debts.
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6A. Definition of inability to pay, etc.; the statutory demand
(1) For the purposes of section 6(2)(c), the debtor appears to be unable to pay a debt if, but only if, the debt is payable immediately and either—
(a) the petitioning creditor to whom the debt is owed has served on the debtor a demand (known as the statutory demand) in the prescribed form requiring him to pay the debt or to secure or compound for it to the satisfaction of the creditor, at least 3 weeks have elapsed since the demand was served and the demand has been neither complied with nor set aside in accordance with the rules;
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