Re Li Man Hoo

CACV83/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 83 OF 2012

(ON APPEAL FROM BANKRUPTCY PROCEEDINGS NO. 5987 OF 2011)

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BETWEEN

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and

CACV84/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 84 OF 2012

(ON APPEAL FROM BANKRUPTCY PROCEEDINGS NO. 5988 OF 2011)

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BETWEEN

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J U D G M E N T

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Hon Kwan JA:

1.I agree with the judgment of Barma JA.

Hon Fok JA:

2.I also agree with the judgment of Barma JA.

Hon Barma JA:

3.These were appeals against the judgment of Deputy Judge Louis Chan (as he then was) dated 29 March 2012 [2012] 2 HKLRD 743), by which he made bankruptcy orders against Mr Li Man Hoo and Madam Foo Shuk Man Patty (“the Appellants”) on petitions presented against them by Industrial and Commercial Bank of China (Asia) Limited, formerly Generale de Banque Belge pour L’Etranger (“the Bank”).  Mr Li is the appellant in CACV 83/2012, while Madam Foo is the appellant in CACV 84 of 2012.  They are husband and wife.  The petitions against them were presented on 22 September 2011, and were based on a judgment debt under a judgment dated 12 February 1999 in HCMP 5226/98, which was brought by the Bank against the Appellants and two companies owned by them.

4.The judgment debt was for HK$14,811,695.14 and US$27,649.72, together with interest on each of those amounts.  It was secured by legal charges over property owned by the Appellants – a car parking space in Robinson Road, Mid-Levels, and a flat and car parking space in South Bay.  The Bank recovered possession of the charged properties (in about May 1999 and January 2000 respectively), and sold them in 2001.  The proceeds of sale appear to have been applied first to the interest which had by then accrued, and after that to the principal debt, so as to extinguish the US Dollar indebtedness, and reduce the principal amount outstanding on the Hong Kong Dollar indebtedness as at 15 August 2001 to HK$8,785,390.44.  As a result of judgment interest continuing to accrue on that balance, the debt on which the petition was based was said by the Bank to have grown to some HK$16,327,083.59 as at 29 April 2011 (the date of the statutory demand issued by the Bank), with further interest accruing at judgment rate thereafter.

5.At the hearing below, the Appellants acted in person.  They defended the petitions on two main grounds: first, that the judgment debt was statute barred by the date of the petition and so could not found a bankruptcy petition against them; and second, that their alleged liability to the Bank was disputed (because, according to them, they had, in early 2000, reached a settlement with the Bank to the effect that the Bank would forego any further claims against them in exchange for their surrendering the charged properties to the Bank), so that it was not the proper subject matter of a bankruptcy petition.  The Judge rejected both of these arguments.

6.Before us, the Appellants were represented by Mr Johnny Mok SC and Mr Vincent Poon, while the Bank was represented (as it was below) by Mr Adonis Cheung.

7.Mr Mok’s primary submission was that the Judge had erred in concluding that the judgment debt (and accrued interest thereon) was not statute barred.  However, if he was wrong as to that, he submitted that the Judge had adopted the wrong approach to the question of whether or not the debt was disputed.  Mr Mok complained that instead of asking himself whether the debt on which the petition was based was disputed in good faith on substantial grounds, the Judge attempted to resolve the question finally, on a balance of probabilities based upon the affidavit evidence before him.  Mr Mok submitted that, had the Judge taken the right course, and had he considered all the material before him properly, he should have concluded that there was indeed a bona fide dispute of substance as to the debt, and that the petition should accordingly be dismissed.

8.Mr Cheung submitted that the Judge was right on the limitation point.  As to the question of whether or not the debt was disputed, he accepted that the Judge appeared to have wrongly attempted to resolve the dispute, rather than asking himself the more limited question whether or not it could be said that a bona fide dispute of substance existed.  However, Mr Cheung submitted that on proper consideration of the evidence that was before the Judge, it was clear that no bona fide dispute of substance was made out in this case.

9.I shall deal first with the limitation point.

10.Section 4(4) of the Limitation Ordinance, Cap. 347 (“the Ordinance”) provides that:-

“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.”

11.“Action” is defined in section 2 of the Ordinance as including “any proceeding in a court of law”.

12.As a matter of ordinary language, these provisions would appear to have the effect of barring any legal proceedings based upon a judgment which was entered more than 12 years prior to such proceedings being commenced.  A bankruptcy petition is clearly a “proceeding in a court of law”, and insofar as the debt on which it is founded is a judgment debt, it would appear to be a proceeding that is “brought upon” the judgment under which the judgment debt arose.  A bankruptcy petition founded on a judgment debt that arose more than 12 years before the petition was presented would therefore appear to fall foul of section 4(4) of the Ordinance.

13.If the matter were free from authority, I would have had little hesitation in holding that the judgment debt underlying the petitions against the Appellants had become statute barred by the time that the petitions were presented, and, as such, would not give rise to a debt on which a bankruptcy petition could be founded.

14.However, the matter is not free from authority.  In England, it is now established that “action” in the context of similar limitation provisions bears a restricted meaning, and refers only to an “action upon a judgment” – a new set of proceedings brought for the purpose of re-establishing the judgment debt (see, e.g., W.T. Lamb & Sons v Rider [1948] 2 KB 331, Lowsley v Forbes [1999] 1 AC 329 and Ridgeway Motors (Isleworth) Ltd v ALTS Ltd [2005] 1 WLR 2871).  The same restricted meaning has been applied to similar limitation provisions in Australia (see, in Victoria, Dennehy v Reasonable Endeavours Pty Ltd (2003) 130 FCR 494; and in New South Wales, O’Mara Constructions Pty Ltd v Avery (2006) 230 ALR 581).  In both England and Australia, it has been held that the relevant limitation provision does not bar the presentation of a bankruptcy or winding-up petition, as the case may be (see the Ridgeway Motors, Dennehy and O’Mara cases).

15.The Ridgeway Motors case was cited to the Judge, who simply followed it.  However, there have since his decision been two further decisions of the Court of First Instance taking a different view, concluding that in Hong Kong (unlike England and Australia), the word “action” in section 4(4) of the Ordinance should be given a wider meaning, so as to catch bankruptcy or winding-up petitions (or, indeed, any form of enforcement or execution proceedings) based on judgment debts that are more than 12 years old. This was the conclusion reached by Harris J (who was not referred to the Judge’s decision in this case) in Re Man Po International Holdings Ltd [2012] 4 HKLRD 911 and by Anthony Chan J (who was referred to the conflicting decisions of the Judge and of Harris J) in his very recent decision in Re Lau Wan (unreported, CFI, HCB 4136/2012, 25 July 2013).  This appeal therefore raises the question of which of these opposing interpretations of section 4(4) of the Ordinance is correct.

16.In considering this question, it is relevant to note that the limitation provisions under consideration in W.T. Lamb were sections 2(4) and 31 of the Limitation Act 1939.  Section 2(4) of the 1939 Act is in identical terms to section 4(4) of the Ordinance, while the definition of “action” in section 31 is materially identical to the definition of action in section 2 of the Ordinance (save that it refers additionally to proceedings in ecclesiastical courts).  The limitation provisions under consideration in Lowsley, however were sections 24(1) and (2), and 38(1) of the Limitation Act 1980, a consolidation statute which consolidated earlier versions of Limitation Acts and Limitation Amendment Acts.  Section 24(1) of the 1980 Act is in materially identical terms to the first part of section 4(4) of the Ordinance (save that the period of limitation is reduced to six years, instead of 12), and section 24(2) is in materially identical terms to the second part of section 4(4) of the Ordinance dealing with interest on judgment debts.  Section 38(1) defines “action” in terms identical to section 2 of the Ordinance.

17.In W.T. Lamb, the English Court of Appeal was faced with an argument that the then RSC O.42 r.23(a), which provided that where six years had elapsed since the date of a judgment, the party claiming to be entitled to execute the judgment had to obtain leave before he could execute the judgment was ultra vires since it (so it was said) conflicted with section 2(4) of the Limitation Act 1939, which provided for a 12-year limitation period in respect of proceedings on a judgment.  The argument appears to have been that since section 2(4) of the Act allowed for a 12-year limitation period, this gave rise to a statutory right, which could not be restricted by the rules of court imposing a requirement of leave, which amounted to a discretionary bar on that right.  This was a bold (and wrong) argument, as there is no inconsistency between an absolute bar on enforcement and recovery after 12 years, and a discretionary bar which comes into effect after six years, and so there was no question of the relevant rule being ultra vires.  But Scott LJ, giving the judgment of the court, concluded, after a review of the history of the relevant statutes of limitation which were consolidated into the Limitation Act 1939, that this history required a distinction to be drawn between execution of a judgment and the bringing of a fresh action on a judgment, and that section 2(4) of the Limitation Act 1939 was concerned only with the latter, and not the former, so that notwithstanding the width of the definition of “action” contained in section 31 of that Act, “action” in section 2(4) should be read as being confined to an action on a judgment in the strict sense.

18.The reasoning in W.T. Lamb would appear to have been inconsistent with the earlier decision of the English Court of Appeal in Lougher v Donovan [1948] 2 All E.R. 11 (in which the main judgment was also given by Scott LJ).  Although Lougher was brought to the attention of the court (after judgment had been reserved) in W.T. Lamb, it was dismissed as being irrelevant.  Subsequent English decisions (including Lowsley – see the judgment at 339D-E) have remarked upon the inconsistency, but until the decision in Lowsley it seems that the approach adopted in W.T. Lamb was regarded as a correct statement of the law.

19.In Lowsley, however, Lord Lloyd similarly traced the history of the relevant provisions relating to judgments in the Limitation Acts (at pages 335 to 342 of the judgment), but came to very different conclusions from those reached by Scott LJ in relation to the position under the Limitation Act 1939.

20.As Harris J pointed out in Man Po, this part of Lord Lloyd’s judgment repays careful study.  For present purposes, I can summarise it as follows:

(1)   Lord Lloyd started with the position at common law, which provided no limitation period for the enforcement of judgments (but presumed that a judgment was satisfied within a year and a day, necessitating steps to be taken to revive the judgment if it were desired to execute it thereafter, with more formalities required the longer the time that had elapsed since the judgment).  He then went through the Real Property Limitation Act 1833 (which introduced, for the first time, a limitation period of 20 years on judgment debts, after which they could not be recovered “by action or suit or other proceeding”), certain procedural changes effected by the Common Law Procedure Act 1852 (which did not affect the absolute bar on recovery imposed by the 1833 Act), the Real Property Limitation Act 1874 (which reduced the period from 20 years to 12), and the Supreme Court of Judicature (1873) Amendment Act 1875, together with the relevant authorities.

(2)   The effect of this examination was to establish that up until the passing of the Limitation Act 1939, it was clear that all forms of enforcement of a judgment debt were absolutely barred after the expiration of 12 years from the date of the judgment (absent part payment or written acknowledgment of the debt).

(3)   Against this background, Lord Lloyd concluded that it was not, and could not have been, the intention of the Limitation Act 1939 to effect a change in this position, and that the correct interpretation of sections 2(4) and 31 of that act was, accordingly, that a judgment debt became statute barred after 12 years, so that no proceedings of any sort could be brought upon it thereafter.  It followed, therefore, that the decision in W.T. Lamb was wrong.

(4)   However, W.T. Lamb had been treated as correctly decided in a number of subsequent cases.  It was also a rule of construction that “when Parliament uses a word or term, the meaning of which has been the subject of judicial ruling in the same or similar context, then it may be presumed that the word or term was intended to bear the same meaning” (see Lowsley, at page 340F, citing Barras v Aberdeen Steam Trawling and Fishing Co Ltd [1933] AC 402 at 411).  It was, however, to be borne in mind that the rule was but an aid to construction and was not in any way conclusive. 

(5)   Importantly, however, there was clear evidence that when enacting the revisions to the Limitation Acts that ultimately became sections 24(1) and (2) of the Limitation Act 1980, Parliament had proceeded on the understanding (albeit, as it turned out, a wrong one) that W.T. Lamb correctly stated the law, and for this reason, the presumption described in Barras was to be given great (indeed, conclusive) weight.

(6)   That understanding was based on the contents of the Report of the Law Reform Committee on Limitation of Actions (1977), which treated the decision in W.T. Lamb as correct, and proposed, on the basis of that understanding, that all forms of execution should be removed from the sphere of limitation and made subject to a discretionary bar after six years.

(7)   As it must have been Parliament’s intention to give effect to the recommendations of the Law Reform Committee when enacting the Limitation Act 1980, the meaning that Parliament intended to be given to the word “action” in section 24(1) of that Act must be taken to be that given to it in W.T. Lamb rather than the wider meaning which could be found in section 38(1).  For this reason, the presumption suggested by Barras was in this case to be given great weight.

(8)   Thus, as from the enactment of the Limitation Act 1980, “action” in section 24(1) of the Limitation was to be given the restricted meaning of an action upon a judgment.

21.Thus, after Lowsley, the position in England has been that section 24(1) of the Limitation Act 1980 applies only to actions on a judgment.  It is not surprising, therefore, that it should have been held in Ridgeway Motors that section 24(1) did not bar the bringing of a winding-up petition more than six years after the judgment giving rise to the judgment debt on which the petition was based, since such a petition is clearly not an action on a judgment in the strict sense.  The Judge below applied Ridgeway Motors, but apparently without fully appreciating the rather complex history of the English legislation.  In fairness to him, it does not seem that he was referred to Lowsley, in which that history was expounded.

22.However, it is also clear from Lowsley that the interpretation put on section 2(4) of the Limitation Act 1939 by W.T. Lamb is wrong.  In Hong Kong, section 4(4) of the Ordinance is in precisely the same terms as section 2(4) of the 1939 Act.  In principle, therefore, the correct interpretation of section 4(4) would be as explained by Lord Lloyd in Lowsley and not that adopted by Scott LJ in W.T. Lamb. The question that arises, however, is whether, because the Limitation Ordinance was enacted in 1965, some 17 years after the decision in W.T. Lamb, the legislature at the time is to be taken as having intended that the word “action” in section 4(4) should be given the meaning ascribed to it in that case.  Harris J in Man Po (with whom Anthony Chan J agreed in Lau Wan) held that it was not to be taken as having intended this, as there was in his view nothing to suggest that it did – there was simply an adoption of section 2(4) of the Limitation Act 1939, without any reference to the kind of considerations that were referred to by the Law Reform Committee in England something over a decade later.  Nor was any authority cited to Harris J suggesting that the decision in W.T. Lamb had been long regarded as good law in Hong Kong.

23.Mr Cheung drew our attention to Hong Kong Hansard in relation to the proceedings of the Legislative Council at which the Limitation Ordinance was discussed.  In moving the first reading of the bill which was to become the Ordinance, the Attorney General stated that the bill “follows very closely the provisions of [the English Limitation Acts of 1939, 1954 and 1963] … thus bringing this … branch of the law into line with the current English law on the subject”.  He suggested that it follows from this that it must have been the intention of the legislature to enact the Ordinance in accordance with the law as it was then understood to be in England, thus incorporating the (erroneously) restrictive definition of “action” adopted by Scott LJ in W.T. Lamb.

24.Mr Cheung also referred us to the Dennehy case, in which the Federal Court of Australia held that section 5(4) of the Limitation of Actions Act 1958 (Vic) (which replaced the Limitation of Actions Act 1955 (Vic), which was based on the English Limitation Act 1939) which was in substantially the same terms as the first part of section 2(4) of the English Act (and section 4(4) of our Ordinance) barred only actions on a judgment, and not execution or bankruptcy proceedings.  In that case, which was decided after Lowsley, Finkelstein J posed (at paragraph 14 of his judgment) the question whether the court should apply the true meaning of the words used, or whether it should instead follow the previously accepted, but erroneous, construction.  He answered it in favour of the latter, explaining his decision in the following terms (at paragraph 16 of his judgment):-

“I propose to act on the basis that when the Victorian parliament enacted the 1955 Limitations Act, based as it was on the English legislation, it did so in the belief that the Lamb case was correctly decided. In the first place, parliament is presumed to have a mastery of the law, both the common law and statute law. It is also presumed to know the cases which interpret statutes. Perhaps it may be taking the principle a little too far to suggest that parliament is also presumed to have knowledge of the law of other jurisdictions. But it is, in my view, proper to act on that presumption as regards the 1939 Limitations Act because it was specifically adopted by the Victorian parliament. That is to say, it is to be presumed that parliament does know the law relating to the precise statute which it is adopting from another common law jurisdiction. …”

He went on to point out that there were available to practitioners in Australia, at the time the 1955 Act was enacted in Victoria, English texts in which W.T. Lamb was referred to as representing the state of English law on section 2(4) of the Limitation Act 1939.  He also drew comfort from the fact that when the similar provision was enacted in New South Wales in 1969 (as section 17 of the Limitation Act 1969 (NSW)), that state’s legislature acted on the basis of a report from the New South Wales Law Reform Commission into Limitations of Actions, which (like the English Law Reform Committee’s Report about 10 years later) clearly proceeded on the basis that W.T. Lamb was good law.

25.The same interpretation was subsequently placed on section 17 of the Limitation Act 1969 (NSW) by the Federal Court of Australia in the O’Mara case.  It should be noted, however, that rather than referring to an “action … brought upon a judgment” (as in the English, Hong Kong and Victorian legislation), the New South Wales legislation refers to “an action on a cause of action on a judgment”, thereby following very closely Scott LJ’s interpretation of section 2(4) of the Limitation Act 1939.  In addition, having regard to the terms of the relevant Law Reform Commission report, the position in New South Wales in terms of the legislative process by which the relevant provision was enacted is virtually identical to that in England.  I therefore do not regard O’Mara as taking matters much further for present purposes.

26.With respect to Finkelstein J, however, I differ from him as to the approach to be taken to the interpretation of the Ordinance.  In my view, a very important, and quite likely determinative, factor in the reasoning in Lowsley by which it was held that since the Limitation Act 1980, the definition of “action” adopted for the purposes of limitation of proceedings on judgments was restricted to actions upon a judgment, was the fact that the intention of Parliament could be readily discerned by reference to the Report of the Law Reform Committee.  The position in Hong Kong as at 1965 was very different.  All that can be said is that the legislature had it in mind to adopt the current English legislation in relation to limitation of actions.  There is, as Harris J pointed out, nothing to suggest that the legislature had in mind any particular definition of “action” for the purposes of section 4(4), still less that it had in mind the definition attributed to that word by Scott LJ in W.T. Lamb.

27.Mr Cheung’s submission, and Finkelstein J’s approach, amount, in my respectful view, to no more than an adoption of the rule of construction referred to in the Barras case – the point of the presumption that the legislature knows the law (even if it can extend to cases on statutory interpretation from other jurisdictions) is to form the basis of an argument that, knowing the law, the legislature must be presumed when enacting legislation in particular terms, to intend to adopt the meaning attributed to those terms by the cases in which they have been considered.  But as Lord Lloyd made clear, the presumption itself is but an aid to construction, and not an inflexible rule.  That is shown by the decision of the House of Lords in R v Chard [1984] 1 AC 279, where the presumption suggested in Barras was subjected to cogent criticism.  There, Lord Diplock said of Barras (at pages 291G-292C) that:-

“… the role that judicial construction of particular words and phrases used in previous statutes may play in the interpretation of the same words in subsequent statutes in pari materia was the subject of discussion in four of the speeches of this House in [Barras]. The divergence between the different speeches makes it in my view a thoroughly unsatisfactory authority for any rule of statutory construction of general application … It is certainly no authority for either of the propositions: (a) that mere failure by Parliament to take an opportunity of passing amending legislation to substitute other words for those which have been construed by a court that is not one of final resort as having borne a meaning which this House subsequently holds to have been incorrect, can throw any retrospective light on the intention of a differently constituted Parliament at the time that the Act to be construed was passed; or (b) that re-enactment of ipsissima verba of an existing statute in an Act that is passed for the purposes of consolidation only, (which is subject to a special parliamentary procedure precluding debate upon the merits of any of the individual clauses) is capable of having any effect upon the construction of those words.”

Lord Scarman agreed with Lord Diplock, saying (at pages 294G-295B) that it would be:-

“wrong to extract from [Barras] an inflexible rule of construction to the effect that where once certain words in an Act of Parliament have received a judicial construction in one of the superior courts and the legislature has repeated them without alteration in a subsequent statute, the legislature must be taken to have used them according to the meaning which a court of competent jurisdiction has given to them. Viscount Buckmaster (p.412) clearly thought that such a rule existed and that it was salutary and necessary: but others of their Lordships took a different view, notably Lord Blanesburgh (p.414) and Lord Macmillan (pp.446-447). Lord Macmillan – for, as I respectfully think, compelling reasons – treated the rule not “as a canon of construction of absolute obligation” but as a presumption in circumstances where the judicial interpretation was well settled and well recognised: and even then his Lordship thought the rule must yield to the fundamental rule that in construing statutes the grammatical and ordinary sense of the words is to be adhered to, unless it leads to some absurdity, repugnance, or inconsistency. This view accords with modern principles of statutory interpretation and should, in my opinion, be preferred to that adopted by Viscount Buckmaster.”

The views of Lord Diplock and Lord Scarman were shared by Lord Roskill and Lord Templeman, while Lord Brandon agreed with Lord Diplock.

28.In the case of the Ordinance, at the time of its enactment in 1965, it would be fair to say that W.T. Lamb had been decided some time ago (some 17 years previously).  However, so far as one can tell, it had not, up to that point, been the subject of further judicial consideration by the English courts.  It was also not a decision of the final appellate court.  In these circumstances, it seems to me that the strength of any presumption that the legislature must be taken as having intended to legislate on the basis that it represented the correct interpretation of what was to become section 4(4) of the Ordinance is not great.  Indeed, its strength (or, I would say, lack of it) might be tested by the following hypothesis.  Suppose that a year or two after the Limitation Ordinance was passed, the point now under consideration had come before the House of Lords, and that the House of Lords (as it would do when the question did come before it some three decades later) concluded that W.T. Lamb was wrongly decided.  Could it realistically be suggested that notwithstanding that the proper interpretation of section 2(4) of the Limitation Act 1939 had been conclusively determined to be otherwise, it would nonetheless be the case that in Hong Kong the wrong interpretation of the provision should prevail and should be locked in place, on the basis of the intention of the legislature divined by recourse to this presumption?  I would respectfully suggest that an argument to that effect would not succeed, and for good reason.  To my mind, the presumption is not one that should be applied here.

29.Or, as Mr Mok put it, the only appropriate presumption to make in relation to the intention of the legislature in Hong Kong when passing the Limitation Ordinance in 1965 is that it intended to enact legislation in the same terms as in England, to be interpreted in whatever way was the correct interpretation of such legislation.

30.I therefore consider that there is no reason why the correct interpretation of section 4(4) of the Ordinance should not be adopted in Hong Kong, untrammelled as we are by the peculiarities of the legislative history of the corresponding English provisions.  I would therefore hold (as did Harris J and Anthony Chan J) that for the purposes of section 4(4) of the Limitation Ordinance, “action” has the very wide meaning attributed to it by section 2 of the Ordinance, and that such meaning is apt to include legal proceedings by way of bankruptcy or winding up petitions.

31.Before leaving this point, I should mention two further matters.

(1)   There was in fact one Hong Kong authority in which W.T. Lamb was mentioned prior to the enactment of the Limitation Ordinance: Loke Yung Cheong v Hung Cheung King [1964] HKLR 207.  As neither of the parties had addressed us on this authority, they were afforded the opportunity to do so by way of further written submissions.  Having considered the authority and the parties’ submissions, I do not think that it takes matters any further.  The case related to an application for leave in 1964 to execute a judgment entered in 1950.  The application was disposed of by agreement between the parties, but Mills-Owens J nonetheless ventured some observations in which he mentioned (without disagreement) the decision in W.T. Lamb.  However, given that everything said was obiter, that these were observations at first instance, and that Mills-Owens J seems to have been of the (with respect, erroneous) view that the combined effect of Lougher and W.T. Lamb was to establish that a judgment debt would become statute barred after 12 years, I do not think that it is of much assistance.

(2)   The court also invited the parties to make submissions on the O’Mara case, but for the reasons I have already given, it seems to me that the legislative history in New South Wales was very different to that in Hong Kong.  I would just add that there was also, in that case, an extended discussion as to whether or not the provisions of the Limitation Act 1969 (NSW) could apply to the bankruptcy legislation, so as to bar the bringing of a petition on the basis of a judgment debt after the expiry of 12 years from the date of the judgment.  The court concluded that since (following W.T. Lamb) execution on the judgment remained possible, the judgment creditor remained a creditor for all purposes of the bankruptcy legislation, and therefore was a creditor with locus to present a petition, notwithstanding the lapse of more than 12 years.  In my view, this conundrum does not arise if section 4(4) is given, as I think it should be, its correct construction.  If this is done, the judgment creditor ceases to be a creditor once the judgment debt is statute barred, thus removing any possible tension between the legislation on limitation and the bankruptcy legislation that would otherwise exist.

32.For the foregoing reasons, I am of the view that the judgment debt on which the petition was based was statute-barred at the time that the petitions were presented, and that it cannot therefore have formed the basis of viable petitions for the bankruptcy of the Appellants.

33.Mr Cheung did not, as I understood his submissions, suggest that if section 4(4) of the Ordinance were to be interpreted as I think it should, the petitions would remain viable in respect of the interest accruing on the judgment debts.  In my view, that was a correct concession to make. The effect of the second part of section 4(4) of the Ordinance is to bar the recovery of interest on a judgment debt more than six years after it becomes due.  As interest accrues from day to day, the effect of the provision is that only interest accruing due within six years of the date of commencement of proceedings can be claimed.  Thus, for example, where it is sought to enforce (or bring bankruptcy proceedings founded upon) a judgment debt within six years of the judgment in question, the whole of the principal and accrued interest may be recovered or relied upon.  Where, however, enforcement (or bankruptcy or winding-up) proceedings are brought more than six (but less than 12) years after the judgment, the principal judgment debt may be recovered (or relied upon), along with the most recent six years’ of interest, but not interest accruing earlier than six years previously.  Where enforcement (or bankruptcy or winding-up) proceedings are brought after the lapse of 12 years, they will be barred absolutely.  In my view, once all forms of enforcement or proceeding on a judgment are barred, this must extend also to any attempt to recover interest on the judgment debt, which arises out of the judgment.

34.It follows that, for the reasons which I have given, the debt on which the petitions were based had become statute barred prior to the presentation of the petitions (and for that matter, the service of the statutory demands preceding them), and that the petitions must therefore fail.

35.I would also add that I see nothing objectionable in principle with this result – to leave debts outstanding and only pursue them after such substantial periods can work real hardship on the debtors concerned, and where a judgment creditor leaves a judgment outstanding for over 12 years without taking steps to enforce it, he is likely to have only himself to blame for losing the benefit of it.

36.In the light of my conclusions on the limitation point, it is not strictly necessary to deal with the alternative argument advanced by Mr Mok. However, for completeness, I shall deal with it very briefly.

37.With respect to the Judge, he was (as Mr Cheung rightly accepted) in error in seeking, as he appears to have done, to determine on a balance of probabilities on the basis of the affidavit evidence the dispute raised by the Appellants.  All that a debtor faced with a bankruptcy (or winding-up) petition is required to do is to establish the existence of a substantial dispute in good faith of the debt on which the petition is based.  Once that is done, the petition should be dismissed, leaving it to the creditor to proceed to establish his entitlement to the debt by proceedings in the ordinary way.

38.That said, however, I am bound to say that in this case, I would not have accepted that such a bona fide dispute of substance had been made out by the Appellants.  This is for a number of reasons:-

(1)   The evidence of the alleged settlement was vague in the extreme, even allowing for the considerable lapse of time since the events in question.

(2)   Moreover, the settlement alleged was inconsistent with several aspects of the incontrovertible evidence.  In particular, the settlement was, on the Appellants’ case, reached in early 2000, following negotiations with the Bank which began in late 1999, after the Appellants had been refused Legal Aid to resist the Bank’s recovery of possession of the charged properties.  Moreover, the settlement was said to be to the effect that the Appellants would not resist recovery of possession of the charged properties in exchange for the Bank accepting such properties in full and final settlement of the judgment debt.  But the evidence was clear that the car parking space in Robinson Road had already been recovered by the bank in May 1999, well before the supposed settlement was allegedly reached, and even before negotiations towards it had allegedly begun.

(3)   Further, there was evidence that after the bank had recovered possession of both properties, it sought payment of part of the judgment debt from the Appellants, which it would not have done had the settlement alleged been reached.

(4)   Further, the settlement alleged was inherently improbable – given that the bank had already obtained orders for possession of the property, there would have been little incentive for the bank to forego its ability to pursue the Appellants for any shortfall if (as turned out to be the case) the proceeds of sale were less than the judgment debt and accrued interest.

(5)   The alleged settlement was improbable for another reason – according to the Appellants, the charged properties were worth some HK$16 million (a figure which was increased to HK$20 million in submissions below).  On these valuations (and certainly the latter), there would have been a surplus over the judgment debt and accrued interest, which it seems most unlikely that the Appellants would have forgone.

(6)   Finally, it appears from the transcript of the proceedings below that in the course of submissions, Mr Li said, when speaking of his negotiations with the bank, that the bank told him that after selling the flat, if there was money left over, it would be given back to the Appellants, but if there was still money owed, the bank would pursue them for the debts.  This is wholly contradictory to the supposed settlement.

39.However, in the light of my conclusions on the limitation issue, the failure on the Appellants’ part to demonstrate a substantial dispute as to their liability does not assist the Bank.

40.I would therefore allow the appeal and set aside the bankruptcy orders made by the Judge.  So far as costs are concerned, I see no reason why these should not follow the event, and I would therefore make an order nisi that the costs here and below (if any) should be paid by the Bank to the Appellants, to be taxed on the party and party basis, with a certificate for two counsel in respect of the hearing before this court, and that the Appellants’ own costs should be taxed in accordance with the Legal Aid Regulations.

Mr Johnny Mok, SC leading Mr Vincent Poon instructed by C.L. Chow & Mackinson Chan, for the Debtors/Appellants in both cases

Mr Cheung Kam Wing Adonis, instructed by Y.T. Chan & Co., for the Petitioner/Respondent in both cases