Re Yuen Mun Wa

Judgment Date23 August 2012
Citation[2012] 5 HKLRD 108
Judgement NumberHCB6350/2011
Subject MatterBankruptcy Proceedings
CourtHigh Court (Hong Kong)
HCB6350/2011 RE YUEN MUN WA

HCB 6350/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 6350 OF 2011

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RE: YUEN MUN WA, a Debtor
EX PARTE: BANK OF CHINA (hong kong) Limited

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Before: Mr Recorder A. Chan, SC in Court
Date of Hearing: 16 August 2012
Date of Judgment: 23 August 2012

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J U D G M E N T

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Introduction

1. There is before this court a bankruptcy petition presented by Bank of China (Hong Kong) Ltd (“the Bank”) against Ms Yuen Mun Wa (“Ms Yuen”). According to the petition, Ms Yuen is indebted to the Bank in the sum of HK$4,076,175.75 together with interest of HK$2,127,828.30 which continues to accrue (“the Debt”). The Debt arose from an unlimited guarantee dated 26 May 1999 (“the Guarantee”) executed by, inter alia, Ms Yuen in favour of Po Sang Bank Ltd (“Po Sang Bank”) by which she guaranteed the indebtedness of Loong Fung Construction Supplies & Trading Co Ltd (“the Company”). The Bank is the successor corporation to Po Sang Bank as a result of the merger effected by the Bank of China (Hong Kong) Limited (Merger) Ordinance, Cap 1167.

2. A statutory demand in respect of the Debt was served on Ms Yuen on 24 June 2011, but it has not been complied with. There is no proposal by Ms Yuen to repay, secure or compound for the Debt.

3. Ms Yuen disputes her liability over the Debt. She maintains that she did not sign the Guarantee. This is the only issue to be decided.

The applicable law

4. There is no disagreement between the parties as to the following legal principles:

(a) The court will not make a bankruptcy order against an alleged debtor if he or she can show, with sufficient precise evidence, that there is a bona fide dispute in relation to the debt on which the petition is based – see Re Tam Mei Kam, HCB 3777/2011, unrep, 25 April 2011, para. 7;

(b) Where there is a real dispute turning to a substantial extent on disputed questions of fact which require viva voce evidence, such dispute cannot properly be decided on petition – In re Lympne Investments Ltd [1972] 1 WLR 523 at 527D–F.

5. The parties however are unable to agree on the threshold for the applicable test of bona fide dispute. Mr Kwong, who appeared for Ms Yuen, argued that the same threshold which a defendant has to meet in respect of a summary judgment application under O.14 should be applied. Ms Cheung, who appeared for the Bank, argued for a higher standard.

6. Ms Cheung has urged me to adopt the same approach as in Periwin Development Ltd v Grandfield Pacific Hotel Ltd, HCCW 29/2001, unrep, at para. 11:

“ In an application for summary judgment, the defendant must show that he has a fair probability of establishing a bona fide defence to obtain leave to defend. To resist a petition, the company must show that it has a bona fide defence, not a fair probability of one. It is possible that a company might on an Order 14 application convince the court that it has a fair probability of a defence but at the petition stage it might not be able to establish it has a bona fide defence. The court must come to a conclusion in the winding-up petition whether there is or is not a bona fide defence. ‘The court does not dismiss a petition on the basis that a company might be able at some stage in the future to scrape together a case that might be arguable.’ If the court should refuse leave to defend in an application for summary judgment, that would be the end of the matter. But if a winding-up order is made, the company’s claim against the petitioner may still be pursued by the liquidator as he thinks proper, so there is no injustice in adopting a higher threshold for the company requiring it to show that it has a bona fide defence, quite apart from the public policy considerations in a winding-up (see Re ICS Computer Distribution Ltd, supra. at 443G-444A and HCCW No. 615 of 1995, p.5).”

Although this was a company winding-up case, there is no disagreement that the dicta can be applied to a bankruptcy petition.

7. On the other hand, I have been referred by Mr Kwong to two fairly recent English decisions. Firstly, Markham v Karsten [2007] EWHC 1509 (Ch), at paras. 44 and 45 (Lexis Transcript):

“[44] In my judgment therefore, there is a genuine triable issue as to the existence of a case of undue influence in relation to the Trust Deed, and the learned Registrar was wrong to reach a contrary conclusion. In so saying, I am far from suggesting that an affirmative outcome to that issue is probable. It may well be that it is improbable. Numerous decisions under the closely analogous CPR Pt 24 show that summary judgment rejecting a defence is not appropriate merely because the defence is improbable. Probabilities are properly a matter for trial.

[45] I see no reason to conclude that the test for the existence of a genuine triable issue in relation to the defence to a bankruptcy petition should be more stringent than that applied to a defence under Pt 24. I consider that as a matter of analysis that two tests must be broadly equivalent. Just as there is no reason to dismiss a petition and require a Claimant to commence proceedings in which he is likely to obtain summary judgment, so there is no reason to make a bankruptcy order where, had the petitioner proceeded by ordinary proceedings the Respondent / Defendant would have obtained permission to defend (even if...

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