Lu Yongliang v. Bank of China Limited, Dongguan Branch and Another

CACV 512/2019

[2021] HKCA 1048

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 512 OF 2019

(ON APPEAL FROM HCSD 3/2018)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Lam VP (giving the Reasons for Judgment of the Court):

Introduction

1.This was an appeal against the judgment of Madam Justice Marlene Ng (“the Judge”) given on 9 October 2019 (“the Judgment”).  By the Judgment, the Judge dismissed the application by the Applicant to set aside a statutory demand. 

2.On 5 November 2019, the Applicant appealed against the Judgment.

3.After hearing the appeal, this Court dismissed the appeal for reasons to be given later.  We now give our reasons.

4.By an agreement dated 25 March 2014 (“the Guarantee”) made with the 1^st Respondent (“BOC Dongguan”) as lender, the Applicant as guarantor agreed to guarantee repayment of all debts owed by a PRC company, namely Jiangmen Central Square Development Management Company Limited (江門市中環廣場投資管理公司, “Jiangmen Central”), to BOC Dongguan under a loan agreement (固定資產借款合同 dated 25 March 2014, “the Loan Agreement”).

5.Subsequently, a number of supplemental agreements were made between BOC Dongguan and Jiangmen Central. The details are not germane for present purposes.  By reason of the default of Jiangmen Central, BOC Dongguan commenced legal proceedings on 14 October 2016 (“the Guangdong Proceedings”) against Jiangmen Central and the Applicant in the Guangdong Higher People’s Court (“Guangdong Court”).  BOC Dongguan sought to recover the outstanding principal amount of the Loan and interest accrued thereon.

6.The Applicant did not file any defence in the Guangdong Proceedings. 

7.On 24 November 2017, the Guangdong Court rendered its judgment (“the Guangdong Judgment”) holding that Jiangmen Central was liable to repay BOC Dongguan the outstanding principal amount of the Loan in the sum of RMB 491,620,000 with interest.  It also held that the Applicant was also liable for the same sum and interest.

8.By a 《民事上訴狀》dated 22 December 2017 Jiangmen Central and several other defendants in the Guangdong proceedings (not including the Applicant) lodged an appeal against the Guangdong Judgment (“Jiangmen Central’s Appeal”) to the Supreme People’s Court (“SPC”).   

9.On 18 January 2018, BOC Dongguan served a statutory demand (“the SD”) in Hong Kong on the Applicant and demanded he repay pursuant to the Guarantee a total sum of RMB 571,964,513.09 (“the SD Debt”) comprising the principal amount of the Loan in the sum of RMB 491,620,000 with interest in the sum of RMB 80,344,513.09.  There was no reference to the Guangdong Judgment in the SD.

10.On 5 February 2018, the Applicant made an application to set aside the SD.  The grounds for setting aside the SD were set out in his affirmation of 5 February 2018, in particular at para 5 of the same:

“ 5. The Alleged Debt is disputed on substantial grounds under rule 48(5)(b) of the Bankruptcy Rules (Cap. 6A) (‘the Bankruptcy Rules’), and also on other grounds under rule 48(5)(d) of the Bankruptcy Rules. I will rely on, among others, the following matters:-

(1) The governing law of both the Guarantee and the Loan Agreement is PRC law, and it is specifically provided in both documents that ail disputes, if unresolvable by negotiation, shall be determined by the People’s Court (人民法院) in the PRC (see Clause 14 of the Guarantee and Clause 16 of the Loan Agreement).

(2) Jiangmen Central’s liability to repay under the Loan Agreement is currently being challenged and under appeal in the PRC courts (‘the Loan Liability Proceedings’). In particular, by a 民事上訴狀dated 22 December 2917 and filed to the Highest People’s Court in the PRC, Jiangmen Central has asked for an Order, among others, that it is not liable to repay the Alleged Debt. There is now produced and shown to me marked ‘LYL-4’ a copy of the said 民事上訴狀.

(3) Further, my liability to guarantee under the Guarantee will also be challenged in the PRC courts (‘the Guarantee Liability Proceedings’). In particular, by a 民事上訴狀to be filed to the Highest People’s Court in the PRC by I5 February 2018, I will ask for an Order, among others, that I am not liable to guarantee the Alleged Debt under the Guarantee. There is now produced and shown to me marked ‘LYL-5’ a copy of the working draft of the said 民事上訴狀.

(4) Therefore, by reason of the Loan Liability Proceedings and the Guarantee Liability Proceedings in the PRC, Jiangmen Central’s liability to repay under the Loan Agreement and my liability to guarantee under the Guarantee are live issues which are required to be determined by the PRC courts. Accordingly, the liability to repay the Alleged Debt is currently in doubt.

(5) The PRC lawyers acting for Jiangmen Central and those acting for me are of the view that we have a reasonable prospect of success. I shall reserve the right to adduce their legal opinion in support of this application should it be contested by the Respondent.

(6) In any event, I am informed and verily believe that the Statutory Demand is defective because:-

(i) it does not state the rate of the interest being charged;

(ii) it does not state the date from which the interest being charged has allegedly accrued;

(iii) the interest claimed is stated to be calculated up to 14 January 2018 instead of up to the date ofthe Statutory Demand, i.e. 18 January 2018; and

(iv) it is stated that no security has been provided for the Alleged Loan, but in fact the Alleged Debt (to the best of my knowledge and information) is secured by a charge over a commercial plaza in Jiangmen (the total size of which is over 600,000 square feet).

I will leave it to Counsel to make the appropriate legal submissions on my behalf at the substantive hearing of this application.”

11.There was no averment as to the requirements under the Foreign Judgements (Restriction on Recognition and Enforcement) Ordinance Cap 46 (“FJRREO”) or the Mainland Judgments (Reciprocal Enforcement) Ordinance (“MJREO”) Cap 597 in those grounds.  

12.By a 《民事上訴狀》dated 1 March 2018, the Applicant lodged an appeal against the Guangdong Judgment (“the Applicant’s Appeal”) to the SPC. 

13.On 30 November 2018, the SPC dismissed both Jiangmen Central’s Appeal and the Applicant’s Appeal and upheld the Guangdong Judgment, save that the interest owed by Jiangmen Central as at 8 February 2017 was revised from RMB 46,167,715.42 to RMB 45,135,052.10.

14.On or about 28 March 2019, through his PRC lawyers, the Applicant made an application to the SPC for a retrial of his case.  (“the Retrial Application”).

15.The application to set aside the SD was heard by the Judge on 25 July 2019.  In our judgment of 31 December 2020 (on the application for leave to adduce new evidence) at [29] to [36], we set out how the application was argued on behalf of the Applicant before the Judge and the rejection of his arguments by the Judge.

16.In dismissing the application for leave to adduce new evidence, we held at [66] to [69]:

“ 66. In light of the analysis on the grounds relied upon below and the conduct of the application on behalf of the Applicant before the Judge as discussed earlier, the additional ground of appeal is a new point which had not been canvassed below. As the courts have repeatedly reminded practitioners, generally a new point which is fact and evidence sensitive and for other reasons affecting the conduct of the case below by the other side should not be entertained in appeal: Flywin Co Ltd v Strong & Associates Ltd (2002) 5 HKCFAR 356 and Lehmanbrown Ltd v Union Trade Holdings Inc HCMP 977/2015, 17 June 2015; Chan Chi Wai v Chan Sau Wah [2019] HKCA 584; Mui So Bing v Wan Chi Shing [2019] HKCA 1341 as qualified by the judgment of the Appeal Committee in Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd (2020) 23 HKCFAR 138; Re Qin Jun [2018] HKCA 527.

67. Hence, it is not simply a matter of admitting the new evidence in order to support the additional ground of appeal. Rather, the more fundamental question is whether such additional ground could be entertained in light of the deliberate choice of those acting for the Applicant not to rely on that ground below.

68. It cannot be denied that the new ground, involving a challenge to the underlying indebtedness by reference to the history of the loans of Henghui Group taken up by Jiangmen Central is highly fact and evidence sensitive. More precisely, the issue is not simply whether those loans originated from the LC Fraud but also concerns the alleged involvement of the staff of BOC Dongguan in a conspiracy. To succeed in the application to set aside the statutory demand, the Applicant would have to show a substantive dispute that by virtue of such involvement (if any) of its staff, BOC Dongguan should not be permitted to enforce the Guarantee notwithstanding that it had actually advanced substantial loans to Jiangmen Central (in a sum much larger than those allegedly used to cover the old loans due from Henghui Group).

69. We are not persuaded by Mr Man that the Applicant should be allowed to rely on the new point.  There was simply no good reason for not taking the point below if the Applicant believed it had any merit.  Substantial time was taken for the preparation leading to the proceedings below and the application to set aside the statutory demand had inevitably prolonged the process of bankruptcy proceedings.  It is quite obvious that the Applicant chose to litigate in the mainland proceedings and placed his bet on the appeal to the SPC.  Thus, his counsel adopted the position before the Judge that the courts in Hong Kong should leave the mainland appeal to determine the underlying merits.  Having so conducted himself at the court below, it appears to us to be singularly opportunistic for him to come back to have another go when he lost his battle in the mainland system, including his unsuccessful attempt to apply for Case Protest.” 

17.In arguing the substantive appeal before us, Mr Man SC relied mainly on arguments based on the FJRREO and MJREO.  It is thus relevant to highlight that at the court below counsel for the Applicant specifically disavowed any further reliance on the non-registration in Hong Kong of the Guangdong Judgment and/or the SPC Judgment after the Judge ran through with him the flaw in his logic by reference to Section 16 of the MJREO and the judgment of the Court of Final Appeal in First Laser Ltd v Fujian Enterprises (2012) 15 HKCFAR 569, see Transcript of 25 July 2019 at Appeal Bundle C p.768-778 and [46(c)] and [48] of the Judgment.

18.Mr Man submitted that the Judge had misunderstood the position of the then counsel for the Applicant. Having read the relevant parts of the transcript, we do not agree.  It is clear to us that the counsel who acted for the Applicant did not argue the registration point in the way Mr Man did.  There was no reference to the FJRREO and he only focused on section 16 of the MJREO.  His submission seemed to be that any reference to a Mainland judgment would be subject to the requirement of registration, which is not supported by a fair reading of Section 16(1).  He certainly did not argue that the service of the SD is an act of enforcement of the judgment or proceedings for the recovery of a sum payable under a Mainland judgment under Section 22(2).  He did not refer to Section 22 in his submissions before the Judge.

19.It is also clear from the reading of the transcript that after the Judge had gone through with him the difficulties in his contention (based as it was on Section 16 of the MJREO), he accepted that the argument could not be sustained and said he was not going to take the point any further, see transcript at p.778J to O.     

20.In the Applicant’s skeleton submissions of 28 January 2021, Mr Man confirmed the Applicant would only rely on the following grounds of appeal:

(1) Bearing in mind that BOC Dongguan was relying on the Applicant’s liability under the Guarantee, the Judge wrongly took into account of the Guangdong Judgment and/or the SPC Judgment because the opinion and findings of the said judgments were obtained by fraud.  

(2) BOC Dongguan was not entitled to bring any proceedings against the Applicant in Hong Kong under the Guarantee in respect of the same cause of action that the SPC Judgment has determined: section 5(1) of the FJRREO.  And

(3) By presenting the SD for a debt arising under the Applicant’s liability under the Guarantee, BOC Dongguan was in effect indirectly enforcing the Guangdong Judgment/SPC Judgment contrary to Section 22(2) of the MJREO. 

21.We can dispose of the first ground succinctly.  The present appeal originated from the application by the Applicant to set aside the SD.  Rule 47(4) of the Bankruptcy Rules Cap 6A prescribed that a debtor applying to set aside a statutory demand must state the grounds on which he claims the demand should be set aside in the supporting affidavit.  The burden is on the debtor to satisfy the court that sufficient cause is shown for the demand to be set aside, see Rule 48(1).  The debtor has the burden of making good a case coming within Rule 48(5) by reference to his grounds set out in the affidavit. 

22.Thus, it is necessary to have regard to the grounds advanced before the Judge on behalf of the Applicant in assessing if the Judge fell into error in taking account of the Guangdong Judgment and SPC Judgment as contended by Mr Man.

23.As we have already explained in our judgment of 31 December 2020, it was the Applicant’s main contention before the Judge that the SD should be set aside because he had a good prospect in the Retrial Application notwithstanding the Guangdong Judgment and the SPC Judgment and he deliberately withheld the underlying materials from the court on account of his contention that the matter should be litigated in the Mainland courts.  In light of that, we cannot see how Mr Man could complain about the Judge referring to the Guangdong Judgment and the SPC Judgement and the lack of credible basis for the Court to accept that the Applicant had shown sufficient cause for the SD to be set aside on the arguments advanced at the court below.

24.Further, it should be noted there was no allegation in the grounds for setting aside or in the materials placed before the Judge or in the submissions advanced on behalf of the Applicants that the Guangdong Judgment or the SPC Judgment was obtained by fraud.  At the highest, what had been said to be the case advanced in the Mainland proceedings were that the Guarantee was procured by fraud.  The allegation that those judgments were obtained by fraud was belatedly advanced by Mr Man in this appeal only.  For the reasons already canvassed in our judgment of 31 December 2020, such contention could not be entertained in this appeal.

25.Ground (1) obviously has no merit. 

26.Mr Man relied on section 5(1) of the FJRREO:

“ 5. Certain foreign judgments a bar to proceedings on the same cause of action

(1) No proceedings may be brought by a person in Hong Kong on a cause of action in respect of which a judgment has been given in his favour in proceedings between the same parties, or their privies, in a court of an overseas country, unless that judgment is not enforceable or entitled to recognition in Hong Kong.”

27.Furthermore, counsel also relied on section 22(2) of MJREO:

“ No proceedings for the recovery of a sum payable under a Mainland judgment which would satisfy the requirements specified in section 5(2)(a) to (e) in an application for registration of the judgment under section 5(1), other than proceedings by way of registration of the judgment, shall be entertained in any court in Hong Kong.”

28.Mr Man submitted that BOC Dongguan could have enforced the SPC Judgment by way of registration under the MJREO.  Their failure to do so and the service of the SD was, according to counsel, contrary to the policy under the statutory enforcement regime.

29.Counsel referred us to the judgment of Lord Goff in Republic of India v India Steamship Co Ltd [1993] AC 410 at p.417 to 418 for the purpose of Section 34 of the Civil Jurisdiction and Judgments Act 1982 which is the equivalent of Section 5 of FJRREO.  At common law, unlike the case of a local judgment, there is no merger of the underlying cause of action with a foreign judgment and a claimant could therefore bring another claim in this jurisdiction based on the underlying cause of action.  Section 34 reversed in part this common law rule.

30.But, as explained by Lord Goff at p.423E to 424D, Section 34 does not have the effect of merging the underlying cause of action with the foreign judgment.  It only “create[s] a defence, which was capable of being defeated by estoppel or waiver”: see p.423F. Hence, the House of Lords allowed the appeal and remitted the issue of estoppel or waiver to the Admiralty judge for determination.

31.We understood that Mr Man submitted that the same policy underlined Section 22 of MJREO.  Counsel identified the following as the mischief arising from the common law anomaly which these statutory provisions were enacted to address,

(a) A party should not be vexed twice by the same substantive issues;

(b) This is particularly so when the foreign judgment is subject to a pending appeal;

(c) Risk of inconsistent findings in parallel proceedings; and

(d) To preclude a plaintiff who had won only an unsatisfying victory from suing again on the original cause of action hoping to achieve a better result.

32.As the MJREO is specifically enacted to deal with Mainland judgments, we have invited submissions on whether there is still any scope for the applicability of FJRREO to such judgments.  Mr Man submitted that since the wordings in the two statutory provisions are different, there could be gaps in one which are filled by the other (though no such gap could be identified in the present case). 

33.Though there is no direct authority on point in respect of the application of Section 5 of FJRREO and Section 22 of the MJREO to bankruptcy proceedings or the setting aside of SD, Mr Man invited this Court to apply the same approach in the following authorities in the context of the Limitation Ordinance to hold that bankruptcy proceedings and statutory demands are caught by these sections: Re Li Man Hoo (A debtor) [2013] 4 HKLRD 247; Jamal v Christensen [2018] EWHC 2261 (Ch); Re Laceward Ltd [1981] 1 WLR 133.

34.On the other hand, Mr Yuen SC submitted that as the Applicant did not place reliance on Section 5 of the FJRREO and Section 22 of the MJREO as grounds to set aside the SD at the court below, he could not do so in this Court as the Respondents were deprived of the opportunity to adduce expert evidence on whether the Guangdong Judgment was a final one.

35.On the applicability of Section 5 of FJRREO and Section 22 of the MJREO, Mr Yuen submitted that in any event FJRREO is not applicable and the relevant legislation should be the MJREO only.

36.Mr Yuen further submitted that the service of SD is not a legal process, hence neither Section 5(1) of the FJRREO nor Section 22(2) of the MJREO are relevant.  In this connection, counsel relied on Re a Debtor (No 88 of 1991) [1993] Ch 286; Re a Debtor No 190 of 1987, Times 21.5.1998.

37.Counsel also submitted that bankruptcy proceedings are not proceedings for recovery of a sum of money and therefore do not come within the scope of Section 22(2) of the MJREO.  Nor do they come within the scope of Section 5 of the FJRREO since they are not proceedings brought on a cause of action.  A bankruptcy order puts in place the statutory regime under the Bankruptcy Ordinance for the benefit of all the creditors.  He relied on McPherson & Keay, The Law of Company Liquidation 4^th Edn, §1-001; Parmalat Capital Finance Ltd v Food holdings Ltd [2009] 1 BCLC 274 at [8]; Re International Tin Council [1987] Ch 419 at 455E to 456D; Re Crigglestone Coal Co Ltd [1906] 2 Ch 327 at 331-332; Derek French, Applications to Wind Up Companies 3^rd Edn, p.423-427. 

38.Mr Yuen disagreed with Mr Man on the adoption of the approach in cases decided in the context of Limitation Ordinance to the present context.  Counsel submitted that the underlying public policy reason for not allowing reliance being placed on a statute-barred debt to present a petition is not applicable to the restrictions under Section 22 of the MJREO and Section 5 of the FJRREO.

39.On Mr Man’s policy considerations for the restrictions under these provisions, Mr Yuen submitted that:

(a) The Applicant was not vexed twice.  The bankruptcy proceedings are not brought to establish the liability: such liability had been established by the SPC Judgment;

(b) There was no problem with an appeal.  Insofar as it was necessary, the bankruptcy court can adjourn a petition pending the determination of an appeal;

(c) There was no risk of inconsistent findings; and

(d) There was also no question of the Respondents trying to achieve a better award based on the same underlying facts.

40.Mr Yuen has also drawn to our attention that at the time when the SD was served, the Respondents had obtained the Guangdong Judgment only.  There is uncertainty if the Guangdong Judgment is enforceable under common law in Hong Kong due to the review procedure in the Mainland (see Lee Yau Wing v Lee Shui Kwan [2007] 2 HKLRD 749[1]), as such may render it not a final judgment within the scope of Section 5 of the FJRREO.  Nor was it registrable under Section 6 of the MJREO (due to an appeal having been brought against it).

41.Having heard and considered the submissions of counsel, we held that the Applicant could not succeed on Grounds (2) and (3).  

42.First, as mentioned above, the Applicant did not rely on Section 5 of the FJRREO and Section 22(2) of the MJREO at the court below.  Whilst this Court can entertain fresh argument on points of law, the application of these sections might not be pure points of law.  Putting aside Mr Yuen’s contention on the Respondents being afforded the opportunity to adduce expert evidence (which we did not find to be too convincing since the history of the Mainland proceedings already provided with us the necessary picture in that regard), we found it highly arguable that these defences (if any) had been waived (as it was held by the House of Lords in Republic of India v India Steamship Co Ltd, supra that they could be waived) when counsel for the Applicant took the stance he did at the court below.

43.Second, we agreed with Mr Yuen that Section 22(2) of the MJREO could not be applied to the Guangdong Judgment since it was not final and conclusive under Sections 5(c) and 6(1)(b) of that ordinance.  Thus, at the time when the SD was served, there was no Mainland judgment that could satisfy the requirements specified in Section 5(2).

44.Third, even assuming that FJRREO could be applied in tandem with MJREO, in determining if the Guangdong Judgment could meet the requirement of an enforceable judgment under Section 5 of the FJRREO, the provisions in the MJREO should be taken into account.  FJRREO itself does not prescribe for enforceability of foreign judgments.  Hence, it is necessary to refer to other statutes or common law principles in order to see if a particular foreign judgment is enforceable in Hong Kong before one can determine if Section 5 is engaged.  Hence, FJRREO should be construed in light of MJREO in assessing if a Mainland judgment is enforceable in Hong Kong.  Judgments which are not qualified as final and conclusive for the purpose of the MJREO cannot be regarded as enforceable in Hong Kong under Section 5 of the FJRREO.  Thus, for reasons given above, the Guangdong Judgment could not be regarded as an enforceable judgment in Hong Kong when the SD was served.

45.Having said this, we also took the view that it is reasonably arguable that as far as Mainland judgments were concerned, MJREO should be the governing regime and FJRREO was not, or at least no longer, applicable.  We had also canvassed with counsel the argument of implied repeal to delimit the scope of FJRREO after the enactment of the MJREO (insofar as FJRREO had been applicable to Mainland judgments prior to such enactment).  As counsel had not made full submissions in this regard, we shall leave this point open.

46.Fourth, Mr Yuen’s submission that SD was not a legal process was well-supported by the authorities cited by him.  The service of SD is not the bringing of any proceedings for the purpose of Section 22(2) of the MJREO and Section 5 of the FJRREO.  Mr Man relied on the judgment of Judge Jarman QC in Jamal v Christensen, supra to overcome this difficulty.  In that case, the statutory demand was issued on the basis of a foreign judgment which was given more than 6 years ago.  Hence, it could not be enforceable in England by virtue of section 5 of the Limitation Act 1980.  Whilst we accepted that one can rely on the lack of enforceable debt to set aside a statutory demand, this principle had no application in the present case.  The SD was issued on the basis of the guarantee, not the Guangdong Judgment.  There was no suggestion that the claim based on the Guarantee was time-barred.  As we have discussed above, at the time when the SD was served, neither Section 22(2) of the MJREO nor Section 5 of the FJRREO could provide a defence to the Applicant.

47.Fifth, Section 22(2) should be construed in the context and purpose of the MJREO.  It has to be read together with Section 16 of the ordinance:

“ (1) Any Mainland judgment which would satisfy the requirements specified in section 5(2)(a) to (e) in an application for registration of the judgment under section 5(1) shall, whether or not the judgment has been registered, be recognized in any court in Hong Kong as conclusive between the parties to the judgment in any proceedings founded on the same cause of action and may be relied on by way of defence or counterclaim in any such proceedings.

(2) This section does not apply to a Mainland judgment if—

(a) where the judgment has been registered, the registration of the judgment has been set aside on any ground under section 18 or 19 other than that the judgment has been wholly satisfied; or

(b) where the judgment has not been registered, it is shown that if it had been registered, the registration of the judgment would have been set aside on an application for that purpose on any ground under section 18 or 19 other than that the judgment has been wholly satisfied.

(3) Nothing in this section shall prevent any court in Hong Kong from recognizing a Mainland judgment as conclusive of any matter of law or fact decided in the judgment if that judgment would be recognized as conclusive under the common law before the commencement of this Ordinance.” (our emphasis)

48.Thus, as specifically stated in sub-sections (1) and (3), there are instances where unregistered Mainland judgments are given recognition and effect in the courts in Hong Kong. Under the scheme of the MJREO, recognition and enforcement are two different concepts.  The common law in Hong Kong has always given recognition in at least three ways to Mainland judgments which are final and conclusive: (a) through the doctrine of res judicata, see First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd, supra; (b) foreign judgment as a cause of action on its own, see China NPL Holdings v Mo Haidan [2021] 1 HKLRD 344; (c) foreign judgment as evidence of foreign law on a particular issue between the same parties, see Guangzhou Green-Enhan Bio-Engineering Co Ltd v Green Power Health Products [2004] 3 HKLRD 223. 

49.In light of Section 16, the restriction in Section 22(2) of the MJREO cannot be construed in such a way to preclude recognition being given to unregistered Mainland judgments under our common law.

50.In the present context, the Guangdong Judgment and the SPC Judgment could be relied upon by the Respondents under the doctrine of res judicata in establishing the liability of the Applicant under the Guarantee.  By the same token, the Applicant could also rely on these judgments to preclude the Respondents from proving more than what had been awarded under these judgments in the proof of debt if a bankruptcy order is made.

51.Sixth, Mr Man tried to circumvent the lack of any viable defence under Section 22(2) of the MJREO at the time of service of the SD by contending that in the setting aside application the court should examine whether there could be a bona fide dispute on the debt in question if a bankruptcy petition is presented.  Since the SPC Judgment had been given, and it was a judgment which fulfilled the requirement under Section 5(2) of the MJREO, counsel submitted that the only possible route for the debt to be established was by getting the SPC Judgment registered.  Without such registration, Mr Man said, there is at least a bona fide dispute as to whether Section 22(2) had the effect of barring bankruptcy proceedings grounded upon the liability under the Guarantee.

52.With respect, we do not accept this submission.  The crucial issue is whether bankruptcy proceedings are “proceedings for the recovery of a sum payable under a Mainland judgment” within the meaning of Section 22(2) of the MJREO.  In our judgment, the answer is clearly “No”.

53.As submitted by Mr Yuen, by its very nature bankruptcy proceedings are not proceedings for the recovery of a sum of money.  In Re International Tin Council [1987] Ch 419 at 455F and 456A, Millett J (as he then was) had this to say regarding the nature of a petition:

“ I am not satisfied that … the presentation and hearing of a winding up petition … are properly to be classified as falling within the enforcement jurisdiction at all. It is fallacious to suppose that, because the petitioner is not seeking to establish his debt, the court is exercising its enforcement jurisdiction. Even if the petitioner has previously resorted to litigation to establish his debt, the presentation of a petition marks the commencement of an entirely new lis. The issue at the hearing is not whether the petitioning and other creditors, some of whom will not yet have established their claims, should be paid, but whether the company is insolvent and, if so, whether it should be wound up or allowed to try to trade out of its difficulties. There is much to be said for the view that, in deciding whether or not the company should be wound up, the court is engaged in a new process of adjudication, separate and different from any that may previously have been involved in establishing the petitioning creditor’s debt.

…

… Far from enabling any judgment or award to be enforced, the making of a winding up order prevents it.  The great object of insolvency law, whether individual or corporate, is to protect the debtor from harassment by the creditors, and the assets from piecemeal realisation and unequal distribution as the creditors scramble for them.  Whether the petition is presented by a creditor or by the debtor, its purpose is to obtain an order which will preclude the creditors from enforcing any judgments or awards which they may have obtained, and substitute the right to participate in a pari passu distribution out of an insufficient fund in full satisfaction of their claims.  That is not the enforcement of their judgments or awards, but the opposite.”

54.In Re Jade Union Investment Ltd HCCW 400/2003, 5 March 2004, Barma J (as he then was) said at [18]:

“ … A petition for the winding up of a company is quite different from an action between parties, in which parties seek the court’s determination as to their respective rights and liabilities. By a winding-up petition, a creditor invokes the court’s jurisdiction under the Companies Ordinance to wind up a company on one or more of the grounds set out in section 177(1) of that Ordinance. In doing so, it exercises a class right available to all of the company’s creditors. If a winding up order is made, the creditor will not necessarily have established any right to be paid, or to be admitted to proof in respect of, any particular amount. This is because it will not necessarily have obtained any adjudication from the court of its right to recover any particular amount from the company. It will still be obliged to submit a proof of debt, along with other creditors of the company, and following the adjudication of its proof by the liquidator, it will rank pari passu with all other creditors of the same class for a dividend to be paid out of the assets of the company.”

55.We agreed with Mr Yuen that it is not appropriate to adapt the construction in Re Li Man Hoo (a Debtor), supra, of the expression “an action brought upon any judgment” in Section 4(4) of the Limitation Ordinance Cap 347 to the construction of “proceedings for the recovery of a sum payable under a Mainland judgment” in Section 22(2) of the MJREO.  The underlying policy of the Limitation Acts (and the Limitation Ordinance) was discussed by Mummery LJ in Ridgeway Motors (Isleworth) Ltd v ALTS Ltd [2005] 1 WLR 2871 at [30] and [31].  His Lordship quoted from para 805 of Halsbury’s Laws of England, 4^th ed reissue (1997),

“ The courts have expressed at least three different reasons supporting the existence of statutes of limitation, namely (1) that long dormant claims have more of cruelty than justice in them; (2) that a defendant might have lost the evidence to disprove a stale claim; and (3) that persons with good causes of action should pursue them with reasonable diligence.”

56.None of these considerations is applicable in the context of Section 22(2) of the MJREO (and Section 5 of the FJRREO).  The policy consideration for these statutory provisions were identified by Mr Man in the submissions set out at [31] above.

57.With the context and purpose of Section 22(2) MJREO in mind, and having regard to the nature of bankruptcy proceedings, we cannot see any justification for giving an unnatural meaning to the expression “proceedings for the recovery of a sum payable under a Mainland judgment” in that section to include bankruptcy proceedings.  Given the different purposes being served by the proceedings, it is wrong to describe the Applicant as being vexed twice in the bankruptcy proceedings.  Given the application of the doctrine of res judicata, there cannot be any risk of inconsistent ruling or the Respondents litigating with a view to achieve a better award.

58.We therefore held that even assuming Mr Man could refer to the SPC Judgment to support the setting aside application, it had no merit as Section 22(2) MJREO cannot give rise to a bona fide dispute to the debt in the context of bankruptcy proceedings.

59.The same analysis is applicable to Section 5 of the FJRREO: the bankruptcy proceedings are not “proceedings brought by a person in Hong Kong on a cause of action in respect of which a judgment has been given in his favour in proceedings between the same parties, or their privies, in a court of an overseas country”. Whilst the Respondent had to refer to its status as creditor by reference to the Guarantee, for the reasons given at [53] to [56] above the bankruptcy proceedings are not proceeding brought on the cause of action of the Guarantee. Given the class right nature of bankruptcy proceedings, they are also not “proceedings between the same parties, or their privies” as the Mainland proceedings which resulted in the SPC Judgment.

60.For these reasons, we rejected Grounds (2) and (3).

Conclusion

61.In the circumstances, the appeal was dismissed with costs.

Mr Bernard Man SC, Mr Danny Tang and Mr Victor CI Lui, instructed by O Tse & Co, for the applicant

Mr Rimsky Yuen SC and Mr James Man, instructed by Cheung, Tong & Rosa Solicitors, for the 1^st and 2^nd respondents