RE ALLAN YAP

HCB 7289, 7290 & 7291/2019 [2020] HKCFI 1946 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE BANKRUPTCY PROCEEDINGS NO 7289 OF 2019 ____________ Re: ALLAN YAP, Debtor Ex-Parte: BLOOM RIGHT LIMITED, Petitioner ____________ AND BANKRUPTCY PROCEEDINGS NO 7290 OF 2019 ____________ Re: ALLAN YAP, Debtor Ex-Parte: PLENTY CHOICE INVESTMENTS LIMITED, Petitioner ____________ AND BANKRUPTCY PROCEEDINGS NO 7291 OF 2019 ____________ Re: ALLAN YAP, Debtor Ex-Parte: UNIQUE ROSY LIMITED, Petitioner ____________ (Heard together) Before: Hon Au-Yeung J in Court Date of Hearing: 3 August 2020 Date of Judgment: 7 August 2020 _______________ J U D G M E N T _______________ A. BACKGROUND There are 3 petitions (“the 3 Petitions”) before me concerning the same debtor, Mr Yap, supported by 2 other creditors. The summary is as follows: Petitioning Creditor Debt Bloom Right Limited (HCB 7289/2091) $107,434,823.70 as at 31 August 2019, with interest accruing at $3,504.07 per day Plenty Choice Investments Limited (HCB 7290/2019) $214,270.098.86 as at 19 September 2019 with interest accruing at $7,033.81 per day Unique Rosy Limited (HCB 7291/2019) $322,675,566.22 as at 31 August 2019 with interest accruing at $14,016.29 per day CW Financing Limited (supporting creditor) Not less than $29,500,000 Citizens Money Lending Corporation Limited (supporting creditor) Not less than $12,000,000 The debts in the 3 Petitions arose out of personal guarantees (“the Guarantees”) given by Mr Yap in respect of liabilities of Master Glory Group Limited (“MGG”). MGG was itself ordered to be wound up on 1 June 2020. The related statutory demands and the 3 petitions were served on Mr Yap on 18 October 2019 and 3 December 2019 respectively. There is no dispute as to service. The common defence to oppose the 3 Petitions is that Mr Yap signed the Guarantees on the misrepresentations of unidentified representatives of the petitioning creditors, all from the Huarong Group. The representation was said to be that the representatives would make arrangements to ensure that the Guarantees to be signed by Mr Yap would not be enforceable and would only be used for internal approval and/or clearing within the Huarong Group (“the Representation”). It is therefore submitted that there is a bona fide dispute on substantial grounds for the following reasons: (1) The Petitioners and Mr Yap had no intention to create legal relations as against him as a purported guarantor; and (2) The Guarantees are liable to be set aside on the ground of misrepresentation and/or unconscionability. Mr Yap had taken out applications, out of time, to set aside the statutory demands on 14 January 2020. Linda Chan J ruled that it was unnecessary to deal with the applications because by then the 3 Petitions have then been presented. In any event, the applications were made out of time and no good reason has been shown as to why the Court should extend the time. Hence, Linda Chan J has not dealt with the alleged bona fide dispute on substantial grounds. Legal principles on opposing a bankruptcy petition The legal principles are not in dispute and I gratefully adopt the summaries of Mr Cheung, counsel for Mr Yap; and that of Mr Leung, counsel for the Petitioners. Bankruptcy proceedings are not intended to be used for the purpose of debt collection. If there is a bona fide dispute on the debt which involves disputed questions of fact necessitating oral evidence, such a dispute should not be decided on a bankruptcy petition, which petition should be dismissed for the debt to be resolved by trial in the usual way: Re Li Xiaoming, HCB 1498/2019 (unreported, 4 March 2020) at §31, Mimmie Chan J. In opposing a bankruptcy petition, the debtor has to show a bona fide dispute on substantial grounds by sufficiently precise evidence which is believable and must establish that he has a defence of substance, not just a fair probability of one. It is not sufficient for the debtor to raise “a cloud of objections” on affidavits. See Re Cheung Kwan [2020] HKCFI 1033, 3 June 2020, Linda Chan J. Legal principles on contract law It is trite law that for an agreement to be legally enforceable there must have been at the time it was entered into an intention, objectively established, to create legal relations. It follows that if, as a matter of objective reality, parties to documents in the form of contracts have no common intention to create thereby legal rights and obligations between them, the rights and obligations set forth in the documents will be unenforceable: see FTLife Insurance Co Ltd v Choy Hoi Yan Jacqueline, HCA 1599/2014 (unreported, 28 October 2016), §8, DHCJ Field. The core elements of the law of misrepresentation are as follows: (1) Generally, an actionable misrepresentation requires a false statement of past or present fact, as distinct from a statement of opinion or intention; though a statement of opinion/intention or as to the future may entail an implied statement of fact. (2) Where there is a dispute as to the meaning conveyed, the Court interprets the relevant words or conduct. The approach is objective, viewing the communication from the perspective of a reasonable person in the position of the representee. The test is whether: (i) the words or conduct in fact led the representee to believe the alleged false fact; and (ii) it was reasonable for the representee to believe it from the words or conduct as he perceived them. In applying the test, the characteristics of the representee, including level of sophistication, are taken into account. (3) Where an implied representation is alleged, the question is what a reasonable person would have inferred was being impliedly represented by the representor’s words and conduct in their context. (4) The statement must have the character of one upon which the representee was intended and entitled to rely. (5) The representee must have in fact relied on the statement; though this can sometimes be inferred. The representation need not be the only or main cause of the decision to contract. It is generally sufficient that it be a cause (in other words, a material inducement). See Joytex Development Ltd v Super Homes Ltd, HCA 18/2012 (unreported, 10 October 2018), §77, DHCJ Stock SC; Misrepresentation Ordinance (Cap 284), section 2; Unconscionable Contracts Ordinance (Cap 458), section 5. Analyses D1. No intention to create legal relations Mr Yap was the director and shareholder of MGG and the shareholder of Larry Jewelry International Company Limited (“Larry Jewelry”), both listed companies. MGG and Larry Jewelry issued notes to the Petitioners for the purpose of financing. Those notes were different to the ordinary issuances by MGG and Larry Jewelry in the sense that the representatives of the Petitioners and the Huarong Group requested Mr Yap to sign “Guarantees”. Mr Yap knew the importance of any document signed by him in his personal capacity and the potentially far-reaching impact caused by it. He claimed to have specifically told the representatives of the Petitioners and the Huarong Group that: (1) The Petitioners and Huarong Group must make sure that the documents entitled “Guarantee” to be signed by Mr Yap would not be enforceable documents, and would only be used for the purpose of seeking internal approval and/or clearing within the Petitioners and/or the Huarong Group. Mr Yap emphasized that he would not want to have his personal funds and/or himself at risks in the substantial debt issuance exercise. (2) In fact, unlike a listed company, Mr Yap as an individual would not have the funds to “pay off” the enormous amount of debts. Mr Yap all along knew that once he should become bankrupt, he would no longer be able to act as a director and that would have a damaging effect on his career and family. (3) If the Petitioners required other “real” protections, discussion could be conducted within MGG and/or Larry Jewelry and see if any other security interest could be created in favour of the Petitioners. If any such arrangement could be made, MGG and/or Larry Jewelry would pass the necessary board resolutions and appoint authorized individual(s) to execute necessary documents to implement the same. (4) MGG and Larry Jewelry were listed companies and there were other shareholders who were respectable individuals in the industry. If necessary, these other respectable individuals might well have other arrangements, means and/or networks to protect the interests of the Petitioners and/or Huarong Group. (5) In any event, Mr Yap did not have the permission to make himself a guarantor of MGG and Larry Jewelry’s debts, bearing in mind that they were listed companies and not his own private companies. Mr Yap’s case on no intention to create legal relations was starkly contradicted by the documents. Firstly, the express term of the Guarantees stated that “[Mr Yap] represents and warrants to [the relevant Petitioner] that … this Guarantee constitutes legal, valid and binding obligations of [Mr Yap] enforceable in accordance with its terms.” It is not open to Mr Yap to use parol evidence to contradict what he had agreed to by signing. Secondly, a “Warning Notice” was signed by Mr Yap. The Warning Notice asked him to obtain legal advice; and told him that he had a choice not to proceed with the transaction. Even at a glance, Mr Yap would have seen the parties and words in bold, and a sentence (all in capital letters) inviting him to instruct his own solicitor. Further, the objective circumstances did not support Mr Yap’s case. He knew the Petitioners and Huarong Group were “big players in the industry”. Enormous sums were involved in the issuance of notes. Not only one but 3 petitioners of the same Group were involved. Not only one but 3 Guarantees were signed by Mr Yap. He knew the financial implications of the Guarantees on his career and his family. He was a businessman in charge of listed companies, very different from the 18 year old defendant in FTlife v Choy who was manipulated by her mother. He knew solicitors were involved from the Petitioners’ side when the Guarantees were signed. He unilaterally thought that bringing his own lawyers would, “at least in the eyes of the officials in Chinese enterprises, be seen as a kind of disrespectful and/or impolite act (as that is a sign of distrust)”. Even on his own case, the Guarantees were to be relied on by the Petitioner / Huarong for internal “approval” of something. That plainly was part of the transaction in relation to the issued notes. There is no merit in the first ground in opposition. D2. Guarantees liable to be set aside on the ground of misrepresentation and/or unconscionability The burden was on Mr Yap to satisfy the Court that he has a dispute on substantial grounds. He could not even identify the representatives who had made the Representation. It was not open to him to criticize the Petitioners for not identifying them but filed an affirmation of the Senior Vice President of the Asset Management Department. Mr Cheung criticizes the affirmations filed on behalf of the Petitioners for not giving sufficient answers to the factual matrix described by Mr Yap but just stated the legal contents of the documents signed by the parties. This was not correct. The Petitioners also stated that from the records of the Petitioners, there was no evidence or indication of any representative of the Petitioner and/or Huarong Group having made the Representation. The Petitioners have always intended the Guarantees to carry full validity and effect until all the guaranteed liabilities have been discharged by Mr Yap. The Guarantees were an integral part of the relevant transaction and was not merely for internal approval or clearing within the Petitioner and/or the Huarong Group. The Petitioners confirmed that they had not required any unenforceable document or any document without legal effect to be signed by Mr Yap for any purpose. Mr Yap was far from giving sufficiently precise evidence which was believable. The fact that he did not evade service of the statutory demands and was not aware of the document served on him being statutory demands could not enhance his credibility. Conclusion Here is a debtor raising a cloud of objections on affirmation. I am not satisfied that there is a bona fide dispute on substantial grounds. Mr Yap did not comply with the statutory demands and was plainly unable to pay his debts. I make a bankruptcy order against him. On a nisi basis: (1) Costs of the Petitioners are summarily assessed at $16,497 for each petition; (2) Costs of the Supporting Creditors for the hearing on 29 June 2020 are summarily assessed at $3,000 for each petition; and (3) There be no order for costs in favour of the Supporting Creditors for the second hearing, because the petitions were simple and the Supporting Creditors’ positions were the same as the Petitioners. All costs are to be borne out of the bankrupt’s estate. I thank counsel for their assistance. (Queeny Au-Yeung) Judge of the Court of First Instance High Court Mr Dan Leung, instructed by Nixon Peabody CWL, for the Petitioners Mr Tommy Cheung, instructed by Bobby Tse & Co, for the Debtor Mr Harrison Miao, instructed by Shum & Co, for the Supporting Creditor