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Shun Kai Finance Co Ltd v Wong Shun

Judgment Cited authorities 4 Cited in Precedent Map Related
Vincent
Judgment Date06 October 2006
Year2006
Judgement NumberHCB1166/2006
Subject MatterBankruptcy Proceedings
CourtHigh Court (Hong Kong)
HCB001166/2006 SHUN KAI FINANCE CO LTD v. WONG SHUN

HCB1166/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY NO. 1166 OF 2006

____________________

BETWEEN

SHUN KAI FINANCE COMPANY LIMITED Petitioner
(In Compulsory Liquidation)
and
WONG SHUN Respondent

____________________

Before : Hon. Barma J in Court

Date of Hearing : 6 October 2006

Date of Decision : 6 October 2006

____________________

D E C I S I O N

____________________

1. This was the hearing of a Creditor’s Bankruptcy Petition presented by Shun Kai Finance Company Limited. which is in liquidation, against Mr Wong Shun. The petition is based upon a debt which is in the principal amount of HK$4 million, plus interest thereon, which the Petitioner says is owed to it by the Debtor.

2. Prior to its liquidation, the Petitioner was a company carrying on the business of making loans. The Debtor was one of its directors. Its other main director was the Debtor’s wife, Ms Anna Yeung. The debt arises out of moneys which were lent by the Petitioner to the Debtor on two occasions. The first loan, of HK$3 million, was made on 3 March 1998, while the second, of HK$1 million, was made on 11 March 1998. Each of the loans was made pursuant to a written agreement which expressed itself to be a deed and provided for its sealing by both parties. In the event, for reasons that are not entirely clear, the document was sealed by the Debtor but not by the Petitioner whose corporate seal was never affixed to it.

3. The circumstances in which this came about are explained by Mr Wong in his second affirmation where he says that he was the person responsible for the preparation of the loan agreements, that having prepared the loan agreements and the documentation that was annexed to them, he went on to sign and seal the document himself, after which he took the document to his co-director, his wife, to have it signed by her on behalf of the company. Thereafter, it was taken to a third party for both parties’ signatures to be witnessed and the red wafer was placed on the document in proximity to where the signature was on behalf of the company. However, for some reason which is not explained, the company’s metal seal was not taken out and imprinted on the document.

4. It is, I think, common ground that the failure to emboss the company’s seal on the document means that the document has not been effectively executed as a deed by the company. The schedule to each of the loan agreements contained various terms as to the repayment of the loan. In particular, the Debtor was given the option to repay the loan, together with interest, either by 24 monthly instalments or by paying the principal, in full, on the due date which was two years from the date of the agreement, while paying interest on a current basis at monthly intervals. It is common ground that the Debtor did not opt to pay the loans in full on the due date. In consequence, he was obliged to repay the loans in 24 monthly instalments of principal and interest. The Debtor admits that he never made any repayment at all under the loans and, in consequence, the full amount of the loans, plus interest, remains unpaid.

5. The loans also contained a term whereby, on default in the payment of any single instalment, the Petitioner could declare the whole of the unpaid balance to be due and payable immediately. That is clause 7 and, in particular, the second subparagraph (a) in that clause. Notwithstanding the Debtor defaulted in making any repayment at all, the Petitioner never did declare the whole of the unpaid balance to be due and payable. This may have been because it was, at the material time, under the management and in the control of the Debtor.

6. The Petitioner went into liquidation on 5 November 2003. After it went into liquidation, a Statement of Affairs in relation to its affairs was prepared. That document was prepared on 1 September 2004 and it was signed by both the Debtor and his wife. The Statement of Affairs indicates that it is a statement of the affairs of the company as at 5 November 2003, the date of its liquidation, although in one other place in the document, there seems to have been an error and the date of 1 September was inserted, that being the date of the making of the Statement of Affairs. This being in the Statement of Affairs, the first page of which was also signed by the Debtor, sets out among the debts owed to the Petitioner, the amounts of HK$3 million and HK$1 million respectively, which are the subject of this petition. The page of the schedule on which those amounts are set out was also signed by the Debtor.

7. On 9 November 2004, the Petitioner’s Liquidator demanded repayment from the Debtor of the amounts outstanding, but no repayment was received. Eventually, on 9 December 2005, the Petitioner’s Liquidator caused a statutory demand for the amounts outstanding to be served on the Debtor, again with no result. As the Debtor has failed to make payment pursuant to the statutory demand, he is, pursuant to section 6A or B of the Bankruptcy Ordinance, deemed to be unable to pay his debts. Thereafter, the petition was issued on 17 February 2006.

8. The Debtor disputes his liability to pay the amounts on which the petition is based. He says that he is not obliged to repay the loans because the Petitioner’s claim on them is statute barred as the loans were made on 3 and 11 March 1998 respectively and the Debtor was already in default under them one month later, on 3 and 11 April 1998 respectively. The Debtor says that as the petition was not presented until more than six years after that date, the Petitioner’s claim for repayment was, by that point, statute barred by the provisions of section 4(1)(a) of the Limitation Ordinance, which provides that claims based on simple contract shall be barred after the expiry of six years from the date on which they accrue.

9. The Petitioner disputes this. Mr Pao who appears for it today, has submitted as follows. First, as the loan contracts were executed as deeds by the Debtor, the Petitioner’s claim against the Debtor is an action on a specialty to which the longer limitation of 12 years applies, pursuant to section 4(3) of the Limitation Ordinance. The Petitioner contends that the fact that the loan contracts were not executed as deeds on its own part is irrelevant for this purpose.

10. The Petitioner goes on to submit, however, that, secondly, if the fact that there was a defect in the execution of the contracts as deeds by itself is relevant, then the Petitioner submits that the Debtor is estopped from denying that the contracts were executed as deeds because it is clear, says the Petitioner, that the documents were intended to be executed as deeds and it would be inequitable to allow the Debtor now to take advantage of its own failure to ensure that the Petitioner’s seal was affixed to the documents, when nothing had been made of this point in the eight years between the making of the loans and the issue of the petition. The Petitioner says that it relied on the statement that the documents were executed as deeds by advancing the loans to the Debtor, who had received them and could not now resile from the position that the loan agreements were, as between himself and the Petitioner, deeds under seal.

11. Third, even if the loan agreements are not to be treated as deeds as against the Debtor, the Debtor has, by submitting the Statement of Affairs which he has signed, acknowledged his liability to the Petitioner within the terms of section 23(3) of the Limitation Ordinance so that time began to run afresh as from the date of that acknowledgement, which was less than six years prior to the presentation of the petition.

12. A fourth argument put forward by the Petitioner is that, on the true construction of the loan agreement, in particular clause 7(a) thereof, the Debtor’s liability to repay only accrued on 11 September 2004 when the Petitioner sent written notice to the Debtor demanding repayment. But - five - even if the Debtor’s liability accrued on his default in making repayment in respect of any particular instalment, in respect of that instalment, the cause of an action for the entire sum did not accrue on the date of the first defaults in repayment, which were 3 and 11 April 1998, but rather accrued on default in relation to each particular instalment on the date on which there was a default in making payment in respect of it.

13. On this analysis, says the Petitioner, the claim in respect of the final two instalments of each loan did not accrue until 3 and 11 March 2000 respectively, which was within the limitation period of six years. As to this, each of these instalments were themselves in excess of the statutory minimum for the presentation of a petition, of HK$10,000, the instalment in relation to the larger loan being some, I think, $140,000, and the last instalment in relation to the loan of $1 million being somewhere in excess of HK$40,000, giving a total of some HK$180,000-odd for which there was a debt which was, on any view, not statute barred.

14. For the purpose of this judgment, I propose to deal first with the question of acknowledgement by the Debtor of his liability to the Petitioner, as the conclusion to which I have come on this point is determinative of these proceedings.

15. The Debtor submits that the Statement of Affairs does not amount to an acknowledgement of his liability to the Petitioner within the meaning of section 23(3) of the Ordinance because it was not a statement made by him in his personal capacity, but one made by him on behalf of the Petitioner as its director, or former director. It was submitted that an acknowledgement for the purposes of section 23 must be made by or on...

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