Re Lau Wan

HCB 4136/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 4136 OF 2012

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J U D G M E N T

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1.By a bankruptcy petition filed on 26 June 2012 (“Petition”) the petitioner, The Hong Kong and Shanghai Banking Corporation Ltd (“Petitioner”), seeks a bankruptcy order against the debtor, Mr Lau Wan (“Debtor”). The Petition is based on a judgment debt in HCMP 4565 of 1999 given on 17 February 2000 (“Judgment Debt”).

2.There are two interesting points of law in issue, namely, whether the Petition is time-barred by virtue of section 4(4) (“S.4(4)”) of the Limitation Ordinance, Cap 347 (“Ordinance”) and whether there was a “part payment” made by the Debtor which deferred the running of time for the purpose of S.4(4).  There is no argument that if S.4(4) applies to the Petition, it is time-barred because the Petition was brought more than 12 years after the date of the Judgment Debt. 

3.The facts are not in dispute.  They have been helpfully summarised in para 7 of the skeleton submissions of Mr Dawes, who appeared for the Petitioner.  The summary is adopted below with modifications. 

Factual background

4.By an Order of Master Jones dated 17 February 2000 made in HCMP 4565 of 1999, the Debtor was ordered to pay the Petitioner HK$3,126,555.16 secured by a Mortgage dated 28 November 1996 together with interest on the sum of HK$2,761,314.77 at 8.75% per annum or HK$661.95 per day and on the sum of HK$251,750.00 at 12.75% per annum or HK$87.94 per day both from 17 December 1999 to 17 February 2000 and thereafter at judgment rate until payment and costs of the proceedings on an indemnity basis to be taxed.

5.On 16 July 2001, pursuant to the Petitioner’s HK Dollar Savings Account Rules, the Petitioner exercised its contractual right of set-off against the sums of HK$6,294 and HK$205 respectively (“Set-off Sums”) held to the credit of the Debtor in two savings accounts with the Petitioner.

6.In accordance with the Code of Banking Practice and the Petitioner's normal practice, the Petitioner tried to contact the Debtor on 16 July 2001 by calling his office number but the Debtor was not in office.  The Petitioner had also sent a standard form Debit Advice to the Debtor containing details of accounts and amounts that had been debited.  The Petitioner had not at any time received any objection from the Debtor to the set-off.

7.As at 18 January 2012, the Debtor owed the Petitioner HK$2,052,928.47 (“Outstanding Sum”) together with further interest at judgment rate from 19 January 2012 until payment.  The Outstanding Sum having already taken into account the proceeds of the sale of the mortgaged property at a price of HK$2,190,000.00 pursuant to the Petitioner’s power of sale under the said mortgage as well as the Set-off Sums and the initial deposit made on 15 May 2001.

8.By way of a statutory demand dated 18 January 2012 (“Statutory Demand”) the Petitioner demanded the Outstanding Sum.  The Petitioner attempted to effect service on the Debtor by ordinary and registered post as well as attending each of the Debtor’s last known addresses.  The Statutory Demand was also advertised on Sing Tao Daily on 29 February 2012.

9.The Debtor was not present at the last known addresses and all registered posts were marked unclaimed.

10.The Petitioners took out the Petition on 26 June 2012.

11.The Judgment Debt has never been disputed by the Debtor.

S.4(4)

12.The relevant parts of s.4 of the Ordinance are as follows:

“4. Limitation of actions of contract and tort, and certain other actions

…

(4) An action shall not be brought upon any judgment after the expiration of 12 years from the date on which the judgment became enforceable, and no arrears of interest in respect of any judgment debt shall be recovered after the expiration of 6 years from the date on which the interest became due.

…

[cf. 1939 c. 21 s. 2 U.K.; 1954 c. 36 s. 2(1) U.K.]”

13.The point in contention is whether the Petition is “an action brought upon [the Judgment Debt]”.  There is a definition for “action” contained in s.2(1) of the Ordinance:

“‘action’ (訴訟) includes any proceeding in a court of law;”

14.It is difficult to formulate a wider definition for “action” than that provided under s.2(1).  Therefore, as a matter of construction, prima facie the Petition is out of time.  Mr Dawes did not seek to argue otherwise.  His argument is that, premised upon a recent First Instance Hong Kong authority (Re Li Man Hoo (a debtor) [2012] 2 HKLRD 743) which in turn agreed with an English Court of Appeal authority of Ridgeway Motors (Isleworth) Ltd v ALTS Ltd [2005] 1 WLR 2871, “an action brought upon any judgment” has a special or technical meaning of a fresh action brought upon a judgment to obtain a second judgment which could be executed. 

15.Shortly after Li Man Hoo was decided in March 2012, by another decision of the Hong Kong Court of First Instance in August 2012 a different conclusion was reached as to the parameters of S.4(4) : Re Man Po International Holdings Ltd [2012] 4 HKLRD 911.  Li Man Hoo was not referred to the court in Man Po International. 

Re Man Po International Holdings Ltd

16.I start with Man Po International.  The issue in that case was whether winding-up proceedings could be brought based upon a judgment obtained more than 12 years before the launch of those proceedings.  As explained by Harris J, the Ordinance was based upon the Limitation Act 1939 of England.  The judgment of the House of Lords in Lowsley v Forbes [1999] 1 AC 329 at 334-342, which traced the legislative history of the relevant limitation statutes, was examined in some detail by the court.  Based on Lowsley, the word “action” in the English provisions equivalent to S.4(4) had a special meaning (fresh action) as a matter of construction.  However, that special meaning could be traced to an erroneous Court of Appeal decision (WT Lamb & Sons v Rider [1948] 2 KB 331) which was followed in subsequent cases and accepted by Parliament.  Despite the misunderstanding of Parliament, the House of Lords had to give effect to the meaning intended by it: see Man Po International, para 5 at 913-914. 

17.However, Harris J agreed with the submissions of the company that there was no evidence that when the Ordinance was enacted in Hong Kong the Legislature was similarly acting under a misunderstanding of the law.  Further, WT Lamb had not been applied in Hong Kong.  According to Lowsley, the equivalent provisions to S.4(4) properly understood would bar the enforcement of a judgment after 12 years.  There was no reason for a different (and wrong) interpretation to be given to those provisions: see Man Po International, para 7 at 915.

18.With respect, I agree with Harris J.  There is no reason, let alone any compelling reason, why Hong Kong should import into our law a construction which is wrong and against the plain reading of S.4(4).

19.I also agree with Mr Lau, who appeared for the Debtor, that given that the Ordinance (enacted in 1965) was based upon the Limitation Act of 1939, the subsequent misunderstanding of Parliament when the Limitation Act of 1980 was enacted had no bearing at all on the construction of S.4(4). 

Re Li Man Hoo (a debtor)

20.Li Man Hoo was concerned with a bankruptcy petition based on a judgment debt which was more than 12 years old.  With respect, the court was contended with agreeing with the reasoning of Mummery LJ in Ridgeway Motors (see para 42 of judgment at 751).

21.With great respect, when the said reasoning is properly analysed, it is apparent that (a) after reviewing the authorities and legislative history, Mummery LJ was at pains to point out that “an action … upon a judgment” had a special legal meaning derived from its legislative history; and (b) he was bound by authorities (Lowsley) to hold that a winding-up petition did not fall within “an action upon a judgment”: see Ridgeway Motors, para 29 at 2879. 

22.For the reasons already stated above, I am unable to see why the reasoning of Mummery LJ is applicable to the equivalent Hong Kong provisions when there is no similar legislative history.  With respect, I am therefore unable to agree with the decision of Li Man Hoo.

23.For completeness, I should mention two points. Firstly, Mr Dawes made the point that insolvency proceedings, whether personal or corporate, is sui generis being in the nature of a wider legal proceeding (as compared with execution of a judgment) brought for the benefit of the general body of creditors.  I agree but I cannot see why such proceedings do not fall within the definition of “an action (as defined in s.2(1) of the Ordinance) upon a judgment” when they are based upon a judgment. Further, the point was mentioned in the judgment of Mummery LJ (p 2879H) but it did not feature in the ratio of the Court of Appeal:

“Whatever its correct juristic classification may be, a winding up petition is not, according to authorities binding on this court, ‘an action upon a judgment’ within section 24(I) and is not statute-barred.”

24.Secondly, it is common ground that a fresh action on a judgment belongs to the bygone years.  The only modern example which counsel can point to is an action to enforce a foreign judgment.  Hence, if the Petitioner’s contention is correct, S.4(4) would have very limited application.

25.For these reasons, I hold that the Petition is prima facie time-barred pursuant to S.4(4).  I turn to consider the part payment arguments.

Part Payment

26.The Petitioner’s case is that the Set-off Sums constituted part payment and that the relevant limitation period did not begin to run until the set-off was made on 16 July 2001 (“Set-off”).

27.The relevant statutory provisions are to be found in s.23(3) and 24(2) of the Ordinance:

s.23(3):

“Where any right of action has accrued to recover any debt or other liquidated pecuniary claim, or any claim to the personal estate of a deceased person or to any share or interest therein, and the person liable or accountable therefor acknowledges the claim or makes any payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment: …”

s.24(2):

“Any such acknowledgment or payment as aforesaid may be made by the agent of the person by whom it is required to be made under section 23, and shall be made to the person, or to an agent of the person, whose title or claim is being acknowledged or, as the case may be, in respect of whose claim the payment is being made.”

28.Two helpful authorities have been cited by Mr Lau. In light of these authorities, the arguments have been considerably narrowed. Firstly, what underpins a part payment in terms of s.23(3) is the fact that it constitutes an admission of the debt in question:

“A part-payment, like an acknowledgement, can only revive the cause of action and start time running afresh if it provides evidence in the form of an admission by the debtor that the debt remains due despite the passage of time.”

See Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 WLR 565 at 576 F.

29.Secondly, In re Footman Bower & Co Ltd [1961] 1 Ch 443 at 449, it was held that to constitute “payment in respect thereof” (see s.23(3) above) under the equivalent English legalisation the court must look at the act and intention of the debtor:

“Before that Act there was no statutory provision that in the case of a simple contract debt part payment should stop time running under the Statute of Limitations. For a payment to have this effect it was necessary that it should amount to an acknowledgment of the debt and import a new promise to pay the outstanding balance. The mere act of the creditor appropriating a payment to a statute-barred debt could not have this effect, for such an acknowledgment and promise could only come from the debtor. Since the enactment of the Limitation Act, 1939, the position is different, for section 23 (4) now contains a statutory provision applicable to simple contract debts whereby any payment in respect of a debt will make time start to run afresh in respect of that debt. There is no longer need to establish a new promise to pay. In my judgment, however, one must still look at the act and intention of the debtor to see whether the payment is made in respect of the particular debt. Payment is in this subsection dealt with in close conjunction with acknowledgment. Just as an acknowledgment can only acquire that character by the act of the debtor or his agent, so also, I think, a payment can for the purposes of the subsection only acquire the characteristic of being made ‘in respect of’ the debt by the act of the debtor or his agent. Consequently, in my judgment, appropriation by a creditor of a sum received from the debtor towards satisfaction of a particular debt, be it statute-barred or not, cannot make such appropriation a ‘payment in respect thereof’ within the meaning of section 23 (4).”

30.Mr Dawes submitted that the Set-off was a matter of contractual agreement between the parties.  He relies upon clause 16 of the Petitioner’s HK Dollars Savings Account Rules under which the Petitioner enjoyed, at its absolute discretion, a right to consolidate any or all credit balances of the Debtor with all or any of his aggregate liabilities.  The Set-off was made on account of the Judgment Debt.

31.I take the view that the argument cannot stand in light of Footman Bower.  The Set-off was not in any way an act of the Debtor.  It is true that he had agreed at the outset to such unilateral action by the Petitioner, but that general permission (possibly given some years ago) cannot be translated to an act or intention on the part of the Debtor to make payment “in respect of the Judgment Debt”. 

32.Further, I am unable to see that the unilateral act by the Petitioner can constitution an admission by the Debtor of the Judgment Debt.

33.For these reasons, I reject the Petitioner’s case on part payment.

Conclusions

34.I hold that the Petition is time-barred and it is dismissed with costs to the Debtor to be taxed if not agreed.