BERMUDA TRUST (HONG KONG) LTD. v. SHUM WING TAK, IVAN AND ANOTHER

HCA 14421/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 14421 OF 1998

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REASONS FOR JUDGMENT

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1. This is an application by the defendants for determination by this court of a preliminary issue arising out of the order made ex-parte on 12 July 2001 for the examination of the two defendants, pursuant to Order 49B of the Rules.

2. It is submitted by the defendants that, in the light of the form of the order - and here the order we are concerned with is the order made herein on 8 March 2001 - the court has no jurisdiction to order the examination of the defendants pursuant to Order 49B. It is said that Order 49B only applies to money judgments in favour of a plaintiff, not a third party, and that only a judgment creditor may seek and proceed with an examination under 49B, and, that because of the definition of "judgment creditor" in Order 49B, and because of the form of order, the plaintiff in this case is not, for the purpose of Order 49B, the judgment creditor.

3. I will not recite the full terms of the order, but the order is, in short, an order that the defendants do pay a specified sum of money not to the plaintiff, but to the Commissioner of Inland Revenue by a certain date, which has long since expired without payment.

4. I consider that the application is misconceived and must fail for the following brief reasons.

5. The application raises a question of construction of the rules and, for five reasons, the construction contended for by the defendants is simply unsustainable. First, it requires the court to read into the rules the words "to the plaintiff" after the words "for the payment" in Order 49B, rule (1)(1). I see no basis whatsoever for taking that step. I do bear in mind as a starting point what is said in note 49B/1A/1 as to the nature of this, the proposed examination, namely that it is quasi-criminal in nature, as the debtor's liberty is at risk. Nevertheless, it seems to me that there is nothing in either Order 49B or indeed the series of rules starting at Order 45, concerned with the enforcement of judgments and orders, to suggest that really in any respect under this series of rules, such a limitation should be imposed on the method of enforcement of judgments. As a general principle, the court is concerned to assist parties in the enforcement of judgments against delinquent judgment debtors and whilst every effort should be taken in the course of enforcement to protect the judgment debtor's legitimate rights, it cannot be in the interests of good justice to impose a restrictive interpretation of Order 49B as proposed by the defendants.

6. The defendants rely on two aspects of the commentary to the Hong Kong Civil Procedure 2001. The first (and this is the second of the five points) is the introductory paragraph, the note 45/1/2 which states that Order 45(1) deals with the enforcement of money judgments and, since all such judgments will be expressed in the form that "the defendant do pay the plaintiff X", it does not refer to a judgment or order for the recovery of money from a person, which is dealt with by rule 13(1). Insofar as that paragraph of the commentary seeks to draw a distinction between judgments for the payment of money and judgments or orders for the recovery of money from a person, it seems to me that it is correct in the light of the authorities, and that, it seems to me, is what the paragraph is intended to explain. Insofar as that paragraph seeks to suggest that judgments or orders for the payment of money which fall within Order 45(1) are limited to judgments for the payment of money by the judgment debtor to the judgment creditor, then it is plainly wrong and unsustainable.

7. The phrase, money judgment, is not a term of art, and rather than have reference primarily to the commentary, it is obvious that the court must be guided by the wording of the Rules themselves. As I have already said, I see no basis for applying the restriction proposed by the defendants into the rules, whether that be Order 49B or Order 45(1).

8. Next, and the third reason why it seems to me that this application is wrong and misconceived, the defendants seek to rely upon Order 42(1) which provides that if, in the case of any judgment, a form thereof is prescribed by appendix A, the judgment must be in that form.

9. It seems to me that any argument based on this provision is self defeating. As the opening words of that rule make clear, it simply provides that where a form is prescribed by the appendix A for a judgment, then that form must be used. It does not circumscribe the form in which judgments may be made. I can find no form in appendix A prescribing the format of a judgment for payment by defendants to a third party, and therefore appendix A and Order 42(1) are simply inapplicable. In any event, as the commentary in Order 42(1)(i) makes clear, even in cases which would on the face of it fall under Order 42(1)(i), the court should apply common sense and permit variations in the form of judgments whenever appropriate. It cannot be expected that the forms will cater for every possible circumstance.

10. The fourth reason why I consider the application is misconceived is that, although I was not taken directly to them, there are clear references in the commentary to the Hong Kong Civil Procedure 2001, to authorities primarily concerned with the enforcement of undertakings, which do appear to indicate quite clearly that where an undertaking has been given in substitution for an order, for payment by a party to a third party, i.e. a party who is not the judgment creditor, the court will nevertheless allow enforcement of the undertaking by appropriate means under the rules, notwithstanding the fact that the undertaking is given to a third party rather than the judgment creditor. An example is the Gandolfo v. Gandolfo decision which appear under note 49/1/6. There may be other examples. The case of United Mining & Finance Corporation v. Beecher which appears in the commentary under paragraphs 45/1/2 and 45/5/3 may also be a similar case, although that is not entirely clear from the contents of the commentary alone. I would add, as it was canvassed in argument, that it seems to me absolutely clear, and United Mining & Finance Corporation would appear to be an authority for this, that, depending upon the exact form of an order, it is perfectly possible for an order to fall both under Order 45(1) and Order 45(5) so that the judgment creditor may elect to pursue, bearing in mind Order 45(1)(3), either or both sets of remedies available under those rules.

11. The final and fifth reason why it seems to me the defendants' application as to the construction of Order 49B is misconceived, is really a matter of application of common sense. On the facts of this case, it is quite plain that the substance of the order, or the settlement which is embodied in the order, is that the plaintiff, having applied to the court for relief against the defendants, accepted the imposition of relief by the court in the form of, amongst other things, an order directing the defendants to make payment to the Commissioner of Inland Revenue. It would have been perfectly possible to achieve the same effect by an order of the court requiring the defendants to pay the money in question to the plaintiff on the basis of, for example, an undertaking by the plaintiff upon receipt of the money from the defendants to pay it to the Commissioner of Inland Revenue. But rhetorically, I would ask, why should the court be constrained to make orders in a more convoluted way when a simple and direct order will suffice to achieve the same effect?

12. In my judgment it almost goes without saying that the plaintiff in this case, which sought and obtained the relief from the court in the form of the order or orders for payment to the Commissioner of Inland Revenue, is for the purposes of Order 49B rule 8a, if not, the judgment creditor. Order 49B rule 8 is an inclusive provision. Its purpose quite clearly is to extend the category of persons who in the court will treat as the judgment creditor, for the purpose of Order 49B. It is extended beyond the obvious case of the plaintiff, by which I mean the party who has sought and obtained relief. Obviously, in appropriate cases that might be a defendant or a third party where they are counter-claiming. It may include the sorts of categories of person who are referred to in page 103 of Enforcement of Judgments in Hong Kong by Heilbron, Booth and McCook. We are not concerned here with how wide that category of persons is. It may, for example, include the Commissioner of Inland Revenue himself, but that is not an issue for me today.

13. So, for the reasons I have given, it seems to me the application by the defendants, to seek an order that the original order dated 12 July 2001 should not have been made, fails. I would only add the observation that this strikes me, from reading the papers put before me, as a classic case of judgment debtors doing everything possible by fair means or not, to delay the enforcement of the judgments that have been given.

14. As I have said, for the reasons I have given, this particular application was, it seems to me, misconceived and was bound to fail. It had no merit whatsoever, either from the perspective of construction of the rules or when one looks at what the defendants were in reality seeking to achieve.

Representation:

Mr. John Bartlett, instructed by Messrs. Wilkinson & Grist, for the Plaintiff.

Mr. V. Leung of Messrs. Yip, Tse & Tang for the Defendants.

HCA 14421/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 14421 OF 1998

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REASONS FOR DECISION

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Introduction

1. This is the Plaintiff's application for an order in effect to enforce paragraph 3 in the schedule to the consent order dated 24 February 2000 ("the Schedule"). At the end of the hearing on 8 March 2001, I granted an order in terms of the application (as amended). The following are the reasons for that decision.

2. The Plaintiff is the executor of the will of the late Madam Lee (or Li) Po Lun ("the deceased"). The 2 Defendants are the deceased's grandsons. The consent order dated 24 February 2000 is in the form of what is commonly called a "Tomlin" order. The terms of settlement are set out in the Schedule to that order. Paragraph 3 of the Schedule reads :

"The 1st and 2nd Defendants do pay to the Commissioner of Inland Revenue [referring to the Commissioner of Estate Duty], the estate duty and interest thereof, if so found payable, within 14 days from the date of the final determination of the same by the Commissioner of Inland Revenue in respect of the disposal of House 'K' and Carpark No. 16, Villa Dorada, 124 to 126 Blue Pool Road, Happy Valley, Hong Kong ["the Property"] under the said Will."

3. The deceased passed away in December 1993 and shortly before her death, the Property was transferred from her to the Defendants in 1992 ("the 1992 conveyance"). The documents relating to the 1992 conveyance show that a sum of $7.9 million was payable by the Defendants to the deceased. No payment was in fact made and the Plaintiff commenced this action claiming the said sum from the Defendants. The consent order dated 24 February 2000 was agreed to by the parties as a global settlement of the claims brought by the Plaintiff against the Defendants in this action and in HCA 15976 of 1998, as well as any other claims which the Plaintiff may have against the 2 Defendants, their father and a Shum Yee Hing Tong Co. Ltd.

4. There is no dispute as to the court's jurisdiction to make an order for the specific performance of the terms of a "Tomlin" order in the same proceedings in which that order was made. That such jurisdiction exists does not appear to be in doubt: see The Supreme Court Practice 1999, vol. 2, para. 17A-32 citing EF Phillips and Sons Ltd v Clarke [1970] Ch. 322.

5. There was earlier a similar application by the Plaintiff regarding paragraph 2 of the Schedule to the consent order. In a Judgment dated 13 December 2000, the court decided in the Plaintiff's favour in relation to that application.

6. The application resulting in the Judgment dated 13 December 2000 was related to another paragraph of the consent order. Further, the issues raised therein were different from those raised in the present application. Both the reasons given, and the conclusions reached, in the Judgment dated 13 December 2000 are thus irrelevant to my consideration of the present application. Having said that, as the parties agreed at today's hearing, the dispute between them related at the end to the construction of paragraph 3 of the Schedule to the consent order. Paragraph 2 thereof is relevant in so far as it forms part of the whole agreement (contained in or evidenced by the Schedule to the consent order) reached between the Plaintiff and the Defendants on 24 February 2000.

The Issues in this Application

7. The Plaintiff's argument in short is that the Commissioner of Inland Revenue (referring to the Commissioner of Estate Duty) has on 23 March 2000 finally determined the estate duty and interest thereon payable in respect of the disposal of the Property under the deceased's will within the meaning of paragraph 3 of the Schedule.

8. This is denied by the Defendants. In order to understand the Defendants' contention in this application, it is necessary to mention the nature of this action before it was settled on 24 February 2000. The Plaintiff claimed in this action that the Property having been conveyed to the Defendants, they are liable to pay to the deceased's estate $7.9 million. The Defendants resisted that claim on the ground that it was agreed between the deceased and the Defendants that the $7.9 million would be regarded as waived and/or disregarded if the deceased should, in her will, make a bequest of the Property in the Defendants' favour.

9. It was averred in the Defence filed herein that by the deceased's will dated 11 December 1990 (it pre-dated the 1992 conveyance), the deceased made a bequest of the Property in the Defendants' favour and therefore the debt of $7.9 million had been waived and/or discharged. The part of the deceased's will dated 11 December 1990 relating to the bequest reads:

"4. I GIVE DEVISE AND BEQUEATH to my grandsons [the names of the 2 Defendants are set out] my leasehold property at [the address of the Property is set out] ..... subject to payment of any duty payable upon or by reason of my death as tenants in common in equal shares."

The Defendants' contentions can be summarized as follows :

(a) there is a distinction between the disposal of the Property itself as opposed to the disposal of the sale proceeds (that is $7.9 million) of the Property. The defence raised by the Defendants herein (before the consent order) was in effect this: the cancellation of their obligation to pay $7.9 million only took place upon the death of the deceased. According to this plea, there was no inter vivos gift either of the Property or of the $7.9 million;

(b) the cancellation of their obligation to pay $7.9 million upon the deceased's death at most amounted to a gift on death of that sum (as opposed to the Property);

(c) if, contrary to the defence set out above, there was no cancellation of the Defendants' obligation to pay $7.9 million, that debt was a chose in action which formed part of the deceased's estate upon her death.

In either case, there should not be any liability in law on the Defendants' part to pay estate duty for the disposal of the Property in the absence of plain words indicating that they have assumed liability to pay for the same.

11. Further, the Defendants contend that on the literal interpretation of paragraph 3 of the Schedule to the consent order, the Defendants will only be liable to pay estate duty or interest thereon if and when a determination has been made on the basis that the Property has passed to them under the deceased's will. There is no such determination and the determination dated 23 March 2000 (which the Plaintiff relies on in this application) was a determination as regards the estate duty payable for the sale proceeds of the Property (namely, $7.9 million).

12. For the reasons given below, I conclude that, although they are ingenious, there is no merit in the Defendants' contentions.

13. It is common ground between the parties that they reached an agreement on 24 February 2000 which was contained in or evidenced by the Schedule to the consent order. It is also undisputed that the meaning of the terms of the agreement is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that parties must, for whatever reason, have used the wrong words or syntax: see the remarks in ICS Ltd v West Bromwich Building Society [1998] 1 WLR 896, 913 C-D per Lord Hoffmann.

14. As stated above, the undisputed surrounding circumstances relating to the consent order were that the parties intended to reach a global settlement of the disputes between them referred to in paragraphs 1a and b of the Schedule to the consent order. Both parties were represented by solicitors and counsel at the time.

15. Various legal issues were raised by the Defendants at the hearing on 8 March 2001 regarding the true nature of the 1992 conveyance and/or $7.9 million. Those issues include :

(a) whether title to the Property passed to the Defendants by way of the 1992 conveyance (an inter vivos transaction) or by way of the will;

(b) whether the $7.9 million price was waived by the deceased;

(c) if the $7.9 million price was waived, whether it amounted to an inter vivos gift of that sum, or whether it was a gift under the will;

(d) whether the waiver of the $7.9 million was conditional upon payment of estate duty.

16. Irrespective of whether these legal points are valid in law, they are irrelevant to the construction of paragraph 3 of the Schedule because of the following reasons.

17. The parties have chosen the phrase "the disposal of [the Property]" to describe the 1992 conveyance. It is obvious from the choice of that phrase, viewed against the background circumstances surrounding the consent order, that the parties must have intended to avoid the risk of litigation which the various legal points would create if this action were not settled.

18. With that in mind, I conclude that the parties' intention, when the phrase "in respect of the disposal of [the Property] under the said Will" was used, was to give that phrase a wide meaning. In other words, the parties intended that, irrespective of whether the 1992 conveyance and/or the alleged waiver/discharge of $7.9 million is legally to be regarded as a disposal of the Property or of the "sale proceeds" of the Property, the Defendants are to assume the liability to pay estate duty and interest thereon under paragraph 3 of the Schedule.

19. The Defendants argue that the Plaintiff's construction of paragraph 3 of the Schedule would necessitate the addition of words or the deletion of words therefrom. That argument is only correct if the phrase "in respect of the disposal of [the Property] under the said Will" is to be given a narrow meaning.

20. Further to the above, it may be argued on the Defendants' behalf that the 1992 conveyance was a disposal not made under the deceased's will (but was an inter vivos transaction). Irrespective of whether or not that was the true legal position, by agreeing to the phrase "the disposal of [the Property] under the said Will", the Defendants must have agreed to regard the Property as having been disposed of under the deceased's will. It does not lie in their mouths now to dispute that agreed position.

21. By reason of the matters aforesaid, it is strictly irrelevant as to how the Commissioner of Estate Duty arrived at his determination as set out in his letter dated 23 March 2000 provided the estate duty determined is related to the 1992 conveyance. It is clear from the way in which the sum determined was arrived at in Appendix 4 to that letter that he based his determination on $7.9 million which was the price referred to in the 1992 conveyance. I therefore find that this determination falls within paragraph 3 of the Scheule.

22. The Defendants finally argued that the letter dated 4 January 2001 from the Commissioner of Estate Duty to the Plaintiff indicated that there was no final determination because the Commissioner referred therein to the issues raised by the Defendants and asked the Plaintiff to deal with them. There is no substance in this argument and I mention it just to dispose of it.

Conclusion

23. By reason of the matters aforesaid, I conclude :

(a) the Commissioner of Inland Revenue (referring to the Commissioner of Estate Duty) has finally determined the estate duty and interest thereon on 23 March 2000 within the meaning of paragraph 3 of the Schedule;

(b) the Defendants have defaulted to pay to the Commissioner the estate duty and interest so determined within the time provided for in paragraph 3 of the Schedule.

24. There is otherwise no valid reason why an order should not be made in terms of the relief sought by the summons.

25. At the end of the hearing, I awarded costs against the Defendants on common fund basis. This is an unusual costs order. I indicated that I agreed with the Plaintiff's argument that a dishonest defence has been put forward by the Defendants. I so concluded taking into account the long lapse of time between the final determination in March 2000 and the time when the Defendants' arguments were first raised on 8 March 2001. Further, the "reasons" they advanced to resist the Plaintiff's demand for payment kept on changing with time. I also note that there has been a constant shift of position. The excuse that negotiations were undertaken by them with the Commissioner of Estate Duty has been shown to be untrue.