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					                                                               CACV 234/2004

                      IN THE HIGH COURT OF THE
         HONG KONG SPECIAL ADMINISTRATIVE REGION
                            COURT OF APPEAL
                      CIVIL APPEAL NO. 234 OF 2004
                 (ON APPEAL FROM HCB NO. 924 OF 2002)
                           ____________________
BETWEEN
              THE JOINT AND SEVERAL TRUSTEES OF Applicants
             THE PROPERTY OF HAU PO MAN STANLEY
                         (In Bankruptcy)
                                    and
                            HAU PO FUN IVY                       1st Respondent
                                DEREK YUEN                       2nd Respondent
                           ____________________

Before: Hon Rogers VP, Le Pichon JA and Stone J in Court
Date of Hearing: 8 April 2005
Date of Handing Down Judgment: 5 May 2005
                        ____________________

                             JUDGMENT
                           ____________________

Hon Rogers VP:

1.          I agree with the judgment of Le Pichon JA.


Hon Le Pichon JA:


2.          This is an appeal from the judgment of Lam J dated 10 July 2004
dismissing the application made by the Joint and Several Trustees (“the
                                      -   2   -


Trustees”) of the Property of Hau Po Man Stanley (“the bankrupt”) under
sections 50 and 51 of the Bankruptcy Ordinance for relief in respect of certain
transfers or repayments by the bankrupt said to have constituted unfair
preference against the respondents who are the bankrupt‟s sister and her
husband (respectively the “sister” and “2nd respondent”).


3.           Before the judge, the Trustees challenged four repayments:

      (a)    $4 million paid by Novel Gain Enterprise Ltd to the sister by two
             cheques dated 18 January 2000;

      (b)    the transfer of one share in Maxi Worth Limited (“the share”) to the
             sister on 20 December 2000 representing a repayment of $500,000;

      (c)    the transfer of a car in April 2001 to the 2nd respondent representing
             the repayment of $200,000;

      (d)    cash repayment of $650,000 representing the proceeds of certain
             insurance policies to the sister on 24 July 2001.

This appeal is confined to the items (b), (c) and (d) above.


The evidence


4.           The proceedings below were decided on the basis of affidavits filed
by the solicitor for the Trustees and affirmations filed by the sister and 2nd
respondent. Neither counsel applied for cross-examination of any of the
witnesses. The bankrupt himself did not give evidence and he was never
subpoenaed to give evidence by either side. The only evidence emanating
from the bankrupt were letters dated 19 February 2003 and 30 March 2003
replying to letters sent by the Trustees seeking information from him and which
were exhibited to one of the affidavits filed on behalf of the Trustees.
                                         -   3   -


5.           The relevant evidence may be summarised as follows. In March
2000, the bankrupt borrowed $1.5 million from the sister to be repaid in
September 2000. The bankrupt did not repay and on 2 November 2000, the
sister wrote to the bankrupt asking for repayment, stating that she had also “lost
a lot of money” and was “also in need of cash” and expressing some doubt as to
whether her husband‟s company which had not been doing well would be able
to continue (“the first letter”). A month or so later, on 6 December 2000, the
sister wrote a second letter to the bankrupt:

             “… I know Derek went to your clinic several times, made things very
             unhappy. You know the temper of Derek, he will really sue you, I
             really do not want things to reach such a stage that we could no longer
             be relatives …”

„Derek‟ is of course the 2nd respondent.


6.           On 20 December 2000, the bankrupt transferred the share to the
sister for a consideration of $500,000. This was a half share in a membership
of the Clearwater Bay Golf Club. About six weeks later, on 8 February 2001,
the sister wrote a third letter and after referring to the fact that the membership,
though treated as partial payment, was not saleable, she said she was in need of
cash, requesting repayment in cash as she did not want to ask the 2nd respondent
for money again. On 1 April 2001, the bankrupt transferred a car to the 2nd
respondent with a value of $200,000.


7.           The next material event was a letter before action sent by the
solicitors for the bankrupt‟s principal creditor, a Mr Chien, seeking repayment
of $17 million. The writ to recover the outstanding balance together with
interest was served on the bankrupt on 27 June 2001.
                                         -   4    -


8.           On 24 July 2001 of the bankrupt issued a cheque in favour of the
sister in the amount of $650,000 representing the proceeds received upon
redemption of his life insurance policies.


9.           Seen chronologically, the events which unfolded may be
summarized as follows:

            Date                                 Event
            2.11.00                              first letter
            6.12.00                              second letter
            20.12.00                             transfer of the share
            8.2.01                               third letter
            1.4.01                               transfer of car to Derek
            19.6.01                              Mr Chien‟s letter before action
            27.6.01                              writ issued by Mr Chien
            24.7.01                              payment of $650,000 to the sister


10.          In addition to this contemporaneous documentary evidence, there is
the sister‟s affirmation the contents of which the 2nd respondent confirmed in his
own affirmation. Paragraph 15 elaborated upon the visits made to the clinic by
the 2nd respondent:

             “15.    Upon expiry of the said six months, Hau Po Man Stanley was
                     unable to repay me the said sum of HK$1,500,000.00. My
                     financial position at that time was not good as I had incurred
                     heavy losses in the stock markets. In addition, the 2nd
                     Respondent wanted to emigrate to Canada and he wanted to buy
                     a house in Vancouver. I sent letters to Hau Po Man Stanley
                     asking him to repay me the said sum of HK$1,500,000.00.
                     Exhibited hereto and marked „HPFI-11‟ are copies of the said
                     letters. The 2nd Respondent attended the dental office of Hau
                     Po Man Stanley many times. They had hot disputes in his
                     office as to why he still did not pay back the sum of
                     HK$1,500,000.00 to me. The hot disputes sometimes aroused
                     the attention of some of the patients of Hau Po Man Stanley and
                     when this happened he tried to calm him down. However, my
                                          -   5   -


                     husband kept pressing hard for payment from Hau Po Man
                     Stanley. The hot disputes sometimes had driven his patients
                     away. This had caused much embarrassment and
                     inconvenience to Hau Po Man Stanley and he finally decided to
                     transfer one share of Maxi Worth Limited to me on 20th
                     December 2000. Exhibit hereto and marked „HPFI-12‟ are
                     true copies of the Bought/Sold Notes and Instrument of Transfer
                     dated 20th December 2000 of Maxi Worth Limited. I did not
                     receive any cash from Hau Po Man Stanley, my husband
                     therefore continued to attend the said dental office for payment.
                     On one or two occasions of Hau Po Man Stanley even
                     considered reporting the matter to the Police as the hot disputes
                     adversely affected his profession. Hau Po Man Stanley then
                     transferred a vehicle with Registration No. DK889 from a
                     company called Sweetways Ltd. to my husband the 2nd
                     Respondent and a further sum of HK$650,000.00 being cash
                     redemption of a life insurance of Hau Po Man Stanley in June
                     2001 reducing the outstanding amount of the loan to
                     HK$150,000.00.”

The statutory provision


11.           Section 50 of the Bankruptcy Ordinance in pertinent part provides
as follows:

              “50.   Unfair preferences

              …

              (3)    For the purposes of this section and sections 51 and 51A, a
              debtor gives an unfair preference to a person if-

                      (a)   …

                      (b)   the debtor does anything or suffers anything to be done
                            which (in either case) has the effect of putting that
                            person into a position which, in the event of the debtor‟s
                            bankruptcy, will be better than the position he would
                            have been in if that thing had not been done.

              (4)     The court shall not make an order under this section in respect
              of an unfair preference given to any person unless the debtor who gave
              the unfair preference was influenced in deciding to give it by a desire
              to produce in relation to that person the effect mentioned in subsection
              (3)(b).

              (5)      A debtor who has given an unfair preference to a person who,
              at the time the unfair preference was given, was an associate of his
                                          -   6   -


              (otherwise than by reason only of being his employee) is presumed,
              unless the contrary is shown, to have been influenced in deciding to
              give it by such a desire as is mentioned in subsection (4).

              (6)    ….”

This appeal


12.           Mr Manzoni who appeared for the trustees made the following 4
points:

      (1)     the burden is on the respondents to demonstrate a complete absence
              of the relevant desire on the part of the bankrupt;

      (2)     where the respondents are relying only upon an inference and not
              direct evidence, that inference has to be the only reasonable
              inference that can properly be drawn from the facts;

      (3)     for the relevant desire to be removed, the pressure exerted has to be
              proper commercial pressure or physical pressure such as
              intimidation;

      (4)     the evidence in the present case in itself was not sufficient in that
              there had been no attempt to demonstrate any causal link between
              the disputes and the payments.

But the question which is at the heart of this appeal is simply the strength of the
statutory presumption: in essence, it is whether the evidence adduced by the
respondents was sufficient to rebut the statutory presumption.


13.           Section 50 is neither straightforward nor easy to construe.
Subsection (3) provides that if anything done or suffered to be done by the
debtor has the effect set out in subsection (3)(b), that would constitute the
giving of an „unfair preference‟. Whether an act has a certain effect appears to
involve a purely objective test. Even if on that test there had been an unfair
                                         -   7   -


preference, that in itself has no effect because for an order to be made under
section 50, subsection (4) requires that there be a desire to produce in relation to
that person the effect referred to in subsection (3)(b) (“the relevant desire”)
which influenced the debtor‟s decision to give the unfair preference. A
distinction was thus drawn between “intention” and “desire”. As Millett J (as
he then was) observed in Re M C Bacon Ltd [1990] BCC 78 at 87G “intention is
objective, desire is subjective. A man can choose the lesser of two evils
without desiring either.”


14.          In that case which concerned parallel English provisions in section
239 of the Insolvency Act 1986, the company lost its major customer in
December 1986. The directors considered putting the company into
liquidation but, after taking advice, continued to trade. Between mid-April to
the end of May 1987, the directors knew that the company was probably
insolvent and that an insolvent liquidation was a distinct possibility; that
without the continued support of the bank it could not continue to trade; that the
bank asked for a debenture to secure the overdraft and if it were not
forthcoming, the bank‟s support would be withdrawn and, if so, the company
would be forced into immediate liquidation. On 20 May 1987, the company
granted the bank a debenture having made the decision to do so sometime
between 15 April and 20 May. The judge accepted the evidence of the
directors that they had no choice but to accede to the bank‟s request. Millett J
made the following observations:

                     That sufficiently explains the decision to grant the debenture
             and there is no justification for inferring any other reason. There is
             no evidence that either Martin or Mr Creal wanted to improve the
             bank‟s position in the event of an insolvent liquidation and there is no
             reason why they should. I find as a fact that in deciding to grant the
             debenture to the bank neither of them was motivated by any desire
             except the desire to avoid the calling in of the overdraft and to continue
             trading….
                                        -   8   -


                    Mr Glover‟s evidence was to the same effect. He knew that if
             the company was to continue to trade it had no choice but to grant the
             debenture….
             (at 89A-C)

             Mr Glover intended the bank to rank ahead of the pension fund but he
             obviously did not desire it. It was the price he had to pay for the
             bank‟s continued support.
             (at 90E)

In that case, on the evidence, there was no relevant desire. The question did
not therefore arise as to whether the decision to give unfair preference was
influenced by the relevant desire. The Bacon case did not concern the
statutory presumption about which there appears to be no relevant case law.


15.          It is common ground that the sister and the 2nd respondent are
“associates” for the purposes of section 50 such that the statutory presumption
contained in subsection (5) applies. The debtor is presumed, unless the
contrary is shown, to have been influenced in deciding to give the unfair
preference by the relevant desire. In short, the presumption is that the decision
to enter into the transaction was influenced by the relevant desire. But
subsection (5) itself throws no light on the circumstances which would remove
the presumption. What is plain is that it is a rebuttable, rather than an
irrebuttable, presumption. What is important is to consider what influenced a
person to take a particular course. In other words, why did that person do what
he did? If a person appreciates that his act may have a particular result, he
may allow that result to occur even though his reason for so doing may be to
achieve some other objective. Hence what would have influenced him to do
the act was the cause rather than one of the results of the act.


16.          Before turning to the circumstances of the present case, it would be
convenient to dispose of the first and third points raised by counsel for the
Trustees. The presence of the relevant desire of itself is insufficient to cause
                                       -   9   -


the court to make a section 50 order. Equally the statutory presumption is not
about the presence or absence of the relevant desire as such but what influenced
a particular course of action. I therefore see no justification for Mr Manzoni‟s
first point which is to require an associate to demonstrate a complete absence of
the relevant desire on the part of the bankrupt. As regards his third point,
Mr Manzoni sought to draw a distinction between commercial and moral
pressure, suggesting that the latter alone could not remove the relevant desire.
I disagree. First, there is nothing in section 50 itself that requires such a
distinction to be made. Second, the Bacon case which, as we have seen, was a
commercial case does not assist Mr Manzoni. It certainly did not decide that
such a distinction should be drawn much less that the latter type of pressure
could not remove the presumption. In my view, moral pressure can be every
bit as real as commercial pressure.     I can see no valid basis for distinguishing
between the various types or forms of pressure. What is crucial is that the
pressure (whatever type it may be) has the effect of causing the person upon
whom the pressure is applied to perform the act in question.


17.          As regards the present case, I have already summarised the relevant
facts. See paragraphs 5 to 10 above. Since the evidence is either
documentary or in the form of affidavits/affirmations, this court is in as good a
position as the judge in making factual findings.     What is clear is that between
the date of the first letter until the transfer of the share, the 2nd respondent paid
visits to the clinic resulting in “hot disputes” with the bankrupt, sometimes
driving his patients away and causing “much embarrassment and
inconvenience” to the bankrupt. Meanwhile, the sister sent the second letter,
threatening to cut family ties with the bankrupt. The transfer of the share then
took place. Whilst it is not entirely clear whether or not the visits to the clinic
continued between the date of the transfer of the share and the third letter of
6 February 2001. It would appear from the evidence of the sister set out above
                                        -     10   -


(which was unchallenged) that they continued between the date of the third
letter until the transfer of the car on 1 April 2001 and, arguably, even until the
transfer of the insurance proceeds.


18.           The visits made by the 2nd respondent were not to the residence of
the bankrupt; rather, these took place at the clinic where the bankrupt practised
as a dentist and therefore at a place where one would expect his patients to be
present. A professional man in practice can hardly afford the embarrassment
of “hot disputes” such as those described in the sister‟s affirmation and referred
to in her second letter taking place in his office where he carries on his
professional practice. The sister‟s evidence was that, at times, this had the
effect of driving the bankrupt‟s patients away.        On any footing, this kind of
disruption to a professional man‟s practice is serious. Quite apart from the
embarrassment and inconvenience created, it has a direct impact on his practice,
reputation and, importantly, his livelihood.


19.           In addition to this form of pressure, there was also moral pressure
exerted on the bankrupt by the sister. In her second letter, she hinted that if
she were not repaid, a state of affairs might be reached such that they “could no
longer be relatives”. That was little short of a threat to rupture family ties with
the bankrupt. Given the loans that had been made by the sister to the bankrupt
since 1997, it is reasonable to infer that they must have been on very good terms.
Put differently, the sister would hardly have made advances of $3 million to the
bankrupt in October 1997 had they not been on very good terms. At paragraph
8 of the affirmation, the sister said this:

              “I agreed to lend him the money because he was my brother and he
              was the one who helped a lot of the members of the family in early
              years when their children were in universities.”
                                      -   11   -


It is reasonable to infer from that evidence that the bankrupt had close ties with
his relatives and considered such family ties important. In the circumstances,
such a threat from the sister was not an empty threat; it was a threat that meant
something to the bankrupt who would have taken it seriously.

20.          In the present case the unchallenged evidence is sufficiently strong
to warrant a finding that in deciding to make the transfer of the share to the
sister and the car to the 2nd respondent, the bankrupt was motivated by a desire
to put an end to the disruption to his professional practice caused by the 2nd
respondent‟s visits and to preserve his family ties with his relatives.     In other
words, the decision to make those transfers was actuated by the pressure that
had been brought to bear upon the bankrupt by the 2nd respondent and the sister.
In my view, that finding is sufficient to displace the statutory presumption.


21.          It was said that such evidence as there was from the bankrupt
contained in his two letters to the Trustees merely referred to requests by the
sister for repayment.   I do not attach a great deal of importance to the letters or
to the fact that the bankrupt himself did not give evidence. Had the bankrupt
given evidence, more likely than not, his evidence would have been self-serving.
In the present case, the available evidence from which the inferences are drawn
is contemporaneous evidence, reinforced by the sister‟s affirmation which is
consistent with that contemporaneous evidence.

22.          So far as the payment to the sister out of the insurance proceeds
received by the bankrupt is concerned, that stands on a different footing. First,
when one looks at the chronology, there was a considerable time gap between
the date of the transfer of the car on 1 April and the payment of $650,000 which
took place on 24 July. In June, a significant event happened, namely, the issue
of the demand letter of 19 June followed by the writ by Mr Chien against the
bankrupt seeking repayment of the balance of a $17 million loan.          It is to be
                                      -   12   -


noted that during this period, there were no further letters from the sister, the
last one being that dated 6 February 2001. It is also unclear from the sister‟s
affirmation whether or not the 2nd respondent continued his unwelcome visits to
the clinic after the transfer of the car. Given that the evidence as to the
circumstances surrounding the third transfer is unclear and less than satisfactory,
in my view, it is insufficient to warrant inferences as to what actuated that
transfer in the light of the demand and writ for payment by Chien. In those
circumstances, the statutory presumption must prevail.


Conclusion


23.          I would dismiss the appeal relating to the transfer of the share and
the car and allow the appeal relating to the transfer of the $650,000. I would
also make an order nisi that there be no order as to costs.


Hon Stone J:


24.          I have had the advantage of reading in draft the judgment of
Le Pichon JA, and gratefully adopt the detailed summary therein of the
circumstances giving rise to this appeal.


25.          Mr Stanley Hau Po Man, the bankrupt at the centre of this dispute,
is said by his trustees in bankruptcy to have given unfair preferences to his sister
and brother-in-law during that which, it is common ground, was the „relevant
time‟ within the meaning of section 51(1)(b) of the Bankruptcy Ordinance,
Cap 6, namely during the period of two years ending with the day of the
presentation of the bankruptcy petition on which he was adjudged bankrupt.
                                       -   13   -


26.          Three transactions are at issue in this appeal: the share transfer on
20 December 2000, the transfer of a car in April 2001, and, on 24 July 2001, the
sum of HK$650,000, the proceeds of a life insurance policy.


27.          The statutory position regarding the provision of unfair preferences
is governed by section 50 of the Bankruptcy Ordinance, Cap 6. The provisions
directly relevant to this appeal are subsections 50(4) and 50(5).


28.          Subsection 50(4) lays down that the court shall not make an order
in respect of an unfair preference given to any person unless the debtor who
gave the unfair preference “was influenced in deciding to give it by a desire to
produce in relation to that person” the preferential position complained of —
that is, that the act of the debtor “has the effect of putting that person into a
position which, in the event of the debtor‟s bankruptcy, will be better than the
position he would have been in if that thing had not been done”
(subsection 53(3)(b ).


29.          Such preferences work in contravention of the fundamental
principle of bankruptcy law wherein the estate of the debtor is to be distributed
pari passu amongst the admitted creditors.


30.          Under subsection 50(4) the trustee in bankruptcy bears the burden
of establishing that the debtor giving the unfair preference was “influenced” by
the requisite “desire”. In many cases, of course, this will be a burden which
the trustee will find difficult to discharge.


31.          However, subsection 50(5) purports to ease the trustee‟s task in
instances in which the unfair preference was given by the debtor to an
“associate”. This category of persons is defined within section 51B : for
present purposes subsection 51B(2) is the relevant subsection, which reads “A
                                         -   14   -


person is an associate of a debtor if that person is the debtor‟s spouse, or is a
relative, or the spouse of a relative of the debtor or his spouse”.


32.          Thus familial ties with the debtor are recognized and placed within
a special category, the effect of which is set out in subsection 50(5), which in
material part reads :

             “A debtor who has given an unfair preference to a person who, at the
             time the unfair preference was given, was an associate of his…is
             presumed, unless the contrary is shown, to have been influenced in
             deciding to give it by such a desire as is mentioned in subsection (4)”.

33.          In this instance, therefore, the burden is reversed. An “associate”
is tasked with rebutting the statutory presumption, the conceptual underpinning
for which must stem from recognition of the bond usually existing between
family members.


34.          This is the position in the case the subject of this appeal, wherein it
is the debtor‟s sister and brother-in-law who have been beneficiaries of the three
preferences now in question.


35.          As Le Pichon JA has pointed out, neither side led viva voce
evidence at the trial below, which somewhat unusually appears to have been
decided solely upon the basis of affidavits filed by the solicitor for the trustees
on the one hand, and by affirmations filed by the debtor‟s sister, the 1st
respondent, and her husband, the 2nd respondent, on the other. There was no
application by either side for cross-examination upon the deposed evidence, and
the bankrupt himself was not called to give evidence.


36.          Clearly therefore each party finessed its position at trial. The
trustees took the view that, aided by the statutory presumption within
section 50(5), they needed to add nothing more to the evidential pot. For their
                                      -   15   -


part the defendants considered that the evidence put in by the sister and her
husband was sufficient to rebut the presumption.


37.            Each side having calculated thus, the learned trial judge, who
pursuant to section 50(2) was charged with making such order as he considered
just “for restoring the position to what it would have been if that debtor had not
been given that unfair preference”, concluded upon a review of the evidence
that the debtor‟s sister and her husband had been correct. He held that on the
facts of this case the presumption indeed had been rebutted. Was he right?


38.            The concept within this legislation of the donating debtor being
“influenced” in his decision to give the preference by a “desire” to prefer the
donee is not one with which the common lawyer, bred upon the more
predictable diet of objectively-ascertained intention, is instinctively
comfortable.


39.            In its present terms, subsection 50(4) enshrines that which has been
described as “an overlapping test based on motive” (see Fletcher, The Law of
Insolvency, 2002, at para.8-073), and motive is generally regarded within our
system as a moving target which seldom enters the legal equation as an
operative element.

40.            Moreover, the use of the word “influenced” appears to connote that
there is no necessity that the desire to prefer must be dominant, “provided that it
constituted one of perhaps a mixture of motives influencing the debtor‟s
action” : Fletcher, op cit, at 8-074. In this, therefore, as this author further
observes, there appears to be a clear distinction between the previous law on
unfair preferences wherein it was essential to demonstrate that the intention to
give a preference was the dominant one so far as the bankrupt was concerned,
and the modern formulation, whereby it seems that the desire to prefer need
                                     -   16   -


only constitute one of perhaps a mixture of motives influencing the debtor‟s
action.


41.          In addition, the use of the particular term “desire”, which in normal
parlance connotes a positive wish on the part of the debtor that the particular
creditor‟s position be improved, leaves open the situation in which arm‟s length
commercial pressure — in terms, for example, of the threat or onset of
litigation toward a debtor in financial difficulties — may be regarded by the
courts as sufficient to negate any attribution of such requisite “desire” on the
part of the debtor, and thus render inviolate that which appears to be a voidable
preference transaction in the event of ensuing bankruptcy. See, for example,
the first instance decision of Millett J (as he then was) in Re M.C. Bacon [1990]
BCLC 324, in which the learned judge dismissed a liquidator‟s application to
have a debenture set aside as a preference under section 239 of the Insolvency
Act 1986 and held, inter alia, that the transaction would not be set aside under
that section unless the company positively wished to improve the creditor‟s
position in the event of insolvent liquidation, that the requisite desire must have
influenced the decision to enter into the transaction, and that that requirement
was satisfied if it was one of the factors that operated on the minds of those who
made the decision at the time when the decision was made.


42.          This latter case, which is notable for the observations of Millett J
on the provisions as to corporate preference equivalent to subsections 50(3) and
(4) of the Bankruptcy Ordinance, on its facts did not involve any “associate”,
and dealt with that which ostensibly was an arm‟s-length commercial
transaction. As Le Pichon JA has observed, in the area of the statutory
presumption within section 50(5), which is central to this case, there appears to
be no relevant case law.
                                      -   17   -


43.           For my own part I agree with the view that there is little to be
gained by attempting to drive a wedge, as Mr Manzoni at one stage sought to do,
between commercial pressure on the one hand and moral pressure on the other.
Such an exercise is intrinsically flawed, and I reject the disarming general
proposition that commercial pressure renders preferences inviolate but that
„moral pressure‟ necessarily fails to achieve the like result.


44.           It strikes me that this approach has the effect of diverting attention
from the sole relevant issue, which is whether, on the evidence, this debtor was
motivated in part at least by a desire to prefer his sister and her husband at the
expense of the body of creditors who take pari passu upon the making of the
bankruptcy order.


45.           It is at this stage that I respectfully part company with the majority
view in this appeal, which has held that the third preference at issue in this case,
that of the payment to the sister out of the insurance proceeds, stands on
a different footing from the share transfer and the transfer of the car, and that in
this third instance the statutory presumption must prevail.

46.           I entirely agree with this latter conclusion, but for myself I would
go further.

47.           In my judgment the evidence which is before the court in this case
fails to rebut the statutory presumption relating to an “associate”. Accordingly
I would hold that all three of the preferences the subject of this case must fall,
and thus that, in the words of subsection 50(2), the position should be restored
“to what it would have been if the debtor had not given that unfair preference.”


48.           The 1st and 2nd respondents, the sister and her husband, place
reliance upon the pressure they say they exerted upon the debtor for repayment,
                                      -   18   -


whether such was in the form of the creation of disturbance at the debtor‟s
surgery, or in terms of threats of familial ostracisation.


49.          There is no reason to doubt that pressure of this type in fact was
exerted. I find difficulty, however, in coming to the view that this evidence —
which by its nature must be self-serving — in itself is sufficient to rebut the
presumption within subsection 50(5).


50.          It seems to me that it is difficult to conclude from the factual
matrix that was before the learned judge — and which he found sufficient to
persuade him — that this evidence is such as to compel the view that the mind
of the debtor was not influenced in some part by the desire to favour his sister
and her husband, thereby permitting rebuttal of the statutory presumption.


51.          This conclusion begs the question, perhaps, as to what would be
sufficient to rebut the presumption against an “associate”?


52.          Thus posed, the question clearly is unsusceptible to precise
exposition — either the evidence suffices to do the job, or it does not, and this,
perhaps, is like the proverbial elephant : difficult to describe, but you know it
when you see it.


53.          The serious underlying point, however, is that the statutory
presumption as to an “associate” within subsection 50(5) is of some strength,
and in my view is not lightly rebutted.


54.          Any number of factual scenarios may arise in this context. In the
present situation, however, I venture the opinion that, absent the defendants
putting the debtor into the witness box in order that the judge seized with the
issue thus may have had the benefit of some direct evidential basis for forming
                                      -   19   -


the opinion that the debtor in some way had not been “influenced” by the
presumed “desire” to effect the transactions in question, it is difficult safely to
conclude that the presumption has been successfully rebutted.


55.          At bottom, this may be another way of expressing that which I
understood to be Mr Manzoni‟s opening propositions to the effect that in these
circumstances the burden is on the respondents to demonstrate the absence of
the relevant desire upon the part of the bankrupt which thus influenced him to
act as he did, and that in situations wherein, as here, the respondents rely upon
inference as opposed to direct evidence, such inference must be the only
reasonable inference which may be drawn from the facts.

56.          The short point is that, in my view, the evidence before the court
does not support the conclusion that the only reasonable inference to be drawn
from these facts is that in making the three dispositions in question that the
debtor was not in some part influenced by the desire to prefer his sister and her
husband. Accordingly, in my judgment in respect of all three of the
transactions now in issue the respondents have failed to discharge the statutory
burden placed upon them.


57.          In my judgment, therefore, the learned judge below was in error in
finding as he did. He appears to have been attracted by the proposition that
because payment was the lesser of two evils, the presumption was rebutted.
Although, as Millett J sagely noted in Re M.C. Bacon, op cit, “a man can choose
the lesser of two evils without desiring either”, it does not follow from the fact
of the exercise of such choice that the element of such desire necessarily has
been eliminated. And, as I have said, given the effect of the presumption I do
not believe that it has been demonstrated in this case that with regard to the
three dispositions under attack the debtor has not been influenced by such
desire.
                                     -   20   -


58.           For my part I would have allowed this appeal, and set aside the
order of the learned judge below. In these circumstances I can see no reason
why costs should not have followed the event, both here and below.


Hon Rogers VP:

59.           There will therefore be an order in terms of paragraph 23.




      (Anthony Rogers)         (Doreen Le Pichon)          (William Stone)
       Vice-President           Justice of Appeal            Judge of the
                                                         Court of First Instance




Mr Charles Manzoni, instructed by Messrs Johnson, Stokes & Master,
   for the Applicants/Appellants

Mr Kenneth C L Chan, instructed by Messrs Hau, Lau, Li & Yeung,
    for the 1st & 2nd Respondents/Respondents

				
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