RE LAM LAM

CACV000396A/2002

HCB 14221/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 14221 OF 2002

____________

Re:	LAM LAM, a Judgment Debtor
Ex Parte:	BANK OF CHINA (HONG KONG) LIMITED,a Judgment Creditor

____________

 

AND	CACV 396/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 396 OF 2002

(ON APPEAL FROM HCB NO. 14221/2000)

____________

Re:	LAM LAM, a Judgment Debtor
Ex Parte:	BANK OF CHINA (HONG KONG) LIMITED, a Judgment Creditor

____________

(Heard Together)

Coram: Hon Reyes J in Chambers

Date of Hearing: 22 December 2003

Date of Judgment: 22 December 2003

_______________

J U D G M E N T

_______________

 

1. Lam Lam, the Judgment Debtor, appeals against two decisions of Master Woolley.

2. First, there is the decision of Master Woolley in Chambers dated 7 November 2003 in CACV 396/2002 on appeal from HCB 14221/2002. In that decision, Master Woolley ordered that there be a stay of execution of the writ of fieri facias dated 22 October 2003 issued by Lam Lam until further order of the Court. He also ordered that the costs of the Judgment Creditor's application be paid by the Judgment Debtor (Lam Lam) to the Judgment Creditor (Bank of China) with certificates for counsel to be taxed if not agreed. Lam Lam seeks leave to appeal out of time against that decision.

3. The 2nd decision appealed against is a decision of Master Woolley dated 7 November 2003. Master Woolley ordered a stay of execution of any intended writ of fieri facias under HCB 14221/2002 to be issued by Lam Lam until further order of Court. The Master also gave Bank of China the costs of that application.

4. Both decisions concern the costs of an application by the Judgment Creditor against Lam Lam which initially succeeded before Chung J. The decision of Chung J went on to appeal and there Bank of China lost. Costs of some $99,000.00 odd were ordered in respect of the hearing before Chung J. Costs of some $188,000.00 odd were awarded against Bank of China in respect of the Court of Appeal proceedings.

5. Mr Simon Lam who appears on behalf of Lam Lam set out his arguments in a comprehensive skeleton. He points out that Lam Lam's application was made under Order 47, rule 1. That reads as follows:

"	Where a judgment is given or an order made for the payment by any person of money, and the Court is satisfied, on an application made at the time of the judgment or order, or at any time thereafter, by the judgment debtor or other party liable to execution-
	(a)that there are special circumstances which render it inexpedient to enforce the judgment or order, or
	(b)that the applicant is unable from any cause to pay the money,
	then, notwithstanding anything in rule 3, the Court may by order stay the execution of the judgment or order by writ of fieri facias either absolutely or for such period and subject to such conditions as the Court thinks fit."

Pursuant to this order, Master Woolley stayed the issued writ of fi fa and any intended writ of fieri facias to enforce the cost awards in Lam Lam's favour. Mr Lam submits that there are only two grounds that give rise to an application under Order 47 rule 1. There is no question of the Bank of China being unable to pay the judgment debt. So the second limb of a person being unable from any cause to pay is inapplicable. The question is therefore whether there exist any special circumstances which render it inexpedient to enforce the judgment or order.

6. Mr Lam submitted that I should read "inexpedient" in Order 47 in a narrow way to mean "inconvenience". I think that, even reading the word in the narrow way that Mr Lam suggests, Order 47 rule 1(a) would apply here. If (as the Bank of China contends) the judgment debt is set off against a judgment sum due and owing from Lam Lam to Bank of China in the amount of $302,000.00 odd (awarded in HCMP 1205/2001) so that a balance remains owing to Bank of China, then it would be inexpedient to allow a writ of fieri facias to issue. The question is whether Bank of China has a right of set-off.

7. Bank of China relies on Order 45 rule 16 for a right of set-off. That reads as follows:

"If there are a cross-judgment between the same parties for the payment of money execution shall be taken out by that party only who has obtained a judgment for the larger sum and for so much only as may remain after deducting the smaller sum and satisfaction for the smaller sum shall be entered on the judgment for the larger sum as well as satisfaction on the judgment for the smaller sum, and if both sums are equal satisfaction shall be entered on both judgments."

Bank of China says that the set-off of the smaller sum owed by them to Lam Lam against the larger sum owed by Lam Lam to Bank of China means that the smaller sum owed to Lam Lam can be treated as fully satisfied pursuant to Order 45 rule 16. If Order 45 rule 16 is applicable, that should amount to a "special circumstance" within the terms of Order 47 rule 11A. Is Order 45 rule 16 applicable?

8. Mr Simon Lam has done extensive research on the wording of Order 45, rule 16. He suggests that Order 45 rule 16 is modelled after County Courts Act 1888, section 150. Mr Lam suggests that later versions require an application to Court before a (of that provision namely, County Courts Act 1919, section 19; County Courts Act 1934, section 97; County Courts Act 1959, section 99 and County Courts Act 1984, section 72) set-off is allowed. Set-off is therefore a matter for the Court's discretion. Mr Lam urges me to read Order 45, rule 16 analogously.

9. In my view, the wording of Order 45 rule 16 is clear. A set-off is automatic. As a result of that set-off, satisfaction for the smaller sum shall be entered and satisfaction of the largest sum to the extent of the smaller sum shall be entered as well. One does not have to apply to the court before the set-off takes place. I do not think that the later versions of County Courts Act 1888, section 150 allow me to read words into Order 45 rule 16 which are not in that provision. It may or may not be a good idea for Order 45 rule 16 to be amended to require an application to the Court before a set-off. But, at the moment, there are no such words in the provision.

10. By way of fallback position, Mr Simon Lam argues that the Court ultimately retains a discretion whether or not there should be a set-off. It seems to me that a discretion would only exist if there were no automatic set-off. So it does not seem to me that a discretion resides in the Court in this particular case.

11. Nonetheless, if a discretion does reside in the Court, there are two factors which Mr Lam says indicate that the discretion should be exercised in favour of Lam Lam. First, Mr Lam says that a sum of $750,000.00 is wrongly withheld by the Bank of China. The Bank claims $4 million from Lam Lam and the Bank claims to set-off that $750,000.00 against its $4 million claim. Those claims are the subject matter of the dispute in HCMP 1235/2001 between Bank of China and Lam Lam. Lam Lam clearly cannot obtain release of her $750,000.00 right away before trial. Second, Mr Lam points to an imbalance between the two parties. Bank of China is a large financial institution while Lam Lam is an individual. Even if I had a discretion, I think that the 2 factors highlighted by Mr Lam are insufficient for me to exercise the discretion to refuse a set-off.

12. For all these reasons, I dismiss the appeals against the decisions of Master Woolley. I refuse leave to Lam Lam to appeal out of time in relation to its appeal relating to the set-off of its costs in the hearing before the Court of Appeal.

13. There is one final point. Mr Lam suggested that, in relation to the Court of Appeal costs award, separate proceedings under a new action number should have been started by the Bank before the Master. There is no provision in the High Court rules requiring a fresh action to be commenced. It seems to me expedient and right for the matters to have been dealt with before Master Woolley under the same action heading as previously. I do not accept Mr Lam's procedural point in relation to starting fresh proceedings.

14. The Bank will have the costs of both appeals, to be taxed if not agreed on a party and party basis, in any event.

	(A T Reyes)
	Judge of the Court of First Instance
	High Court

Representation:

Mr Simon H W Lam, instructed by Messrs David Hui & Co., for the Debtor/Appellant

Mr Melvin Wong, instructed by Messrs Tsang, Chan & Wong, for the Judgment Creditor/Respondent

CACV000396/2002

CACV 396/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 396 OF 2002

(ON APPEAL FROM HCB NO. 14221 OF 2002)

____________________

Re:	LAM LAM, a Debtor
Ex parte:	BANK OF CHINA (HONG KONG) LIMITED, a Judgment Creditor

____________________

Coram: Hon Rogers VP, Le Pichon and Ma JJA in Court

Date of Hearing: 1 April 2003

Date of Judgment: 1 April 2003

Date of Handing Down Reasons for Judgment: 4 April 2003

_________________________

REASONS FOR JUDGMENT

_________________________

Hon Rogers VP:

1. This was an appeal from a judgment of Chung J. given on 15 October 2002 whereby he adjudged the debtor bankrupt and made the usual bankruptcy order. At the conclusion of the hearing of this appeal, this court allowed the appeal and set aside the bankruptcy order. We now give our reasons in writing.

Background

2. The bankruptcy petition was based on a judgment debt of $302,294.27 together with interest on $289,008.43. That judgment debt arose from High Court Miscellaneous Proceedings No.1205 of 2001. In brief, it is the judgment debtor's case that there is an outstanding action namely High Court Miscellaneous Proceedings No.1235 of 2001 after which, if the judgment debtor is successful, she will be solvent and not liable to be made bankrupt.

3. In those proceedings, HCMP 1235 of 2001, the petitioning creditor has claimed against the judgment debtor in respect of a mortgage which was executed on 18 October 1994 in respect of a flat in Riviera Gardens, Tsuen Wan. Those proceedings were commenced by Originating Summons. The property that was the subject of those proceedings was sold in May 2001. In November 2001, the petitioner applied in effect for summary judgment against the judgment debtor. This was refused and the judge ordered that the action should be carried on as if commenced by writ. The judge must have done so because it emerged from the evidence that had been filed that the judgment debtor was alleging that the mortgage had been entered because of a misrepresentation and under undue influence.

4. That action has proceeded to the stage of close of pleadings and there seems to have been very little which has taken place with regard to that action since then. Instead, in July 2002 the petitioner issued the bankruptcy petition. In opposing the petition, as I have said, the judgment debtor relied on her case in HCMP 1235 of 2001. In particular, it was reiterated that those proceedings were being defended on the grounds of undue influence and misrepresentation. It was said in paragraph 10 of the judgment debtor's affirmation that, if the judgment debtor could successfully defend those proceedings, she would have adequate assets to pay the judgment debt. There is no dispute as to that.

The Judgment below

5. It would seem that the judge below only had before him the affirmation of the judgment debtor in the bankruptcy proceedings and did not have before him the file in HCMP 1235 of 2001. The affirmation made on behalf of the petitioning creditor did of course exhibit one of the judgment debtor's affirmations in HCMP 1235 of 2001. However, had the judge seen the whole file he would have been aware that the judgment debtor had made another affirmation which together with the other affirmation she had served in these proceedings, raised detailed allegations that the judgment debtor had relied upon representations made by her elder brother and, indeed, that she had been misled as well by statements made by an officer of the bank whom she trusted. The importance of the matter is that the judgment debtor claims that she signed the mortgage under circumstances of misrepresentations and undue influence and that had she been aware of the fact that the mortgage document, which she was signing, gave security to the petitioner in respect of all debts owed by the company owned by her elder brother, she would not have committed her property to that extent.

This appeal

6. The petitioning creditor has served affidavits in HCMP 1235 of 2001 seeking to rebut the judgment debtor's allegations. However, it is not possible for a court to decide disputed questions of fact on affidavit unless there are other factors which make it possible for it to do so. In the present circumstances, I do not see how a court could decide whether the judgment debtor's allegations are true without a trial.

7. In argument before us, Mr Wong, on behalf of the petitioner, sought to argue that even if the judgment debtor's allegations were true, she would still be liable to the petitioner to an extent which would render her insolvent. That argument turns on the question as to whether the petitioner can recover anything. That in turn depends upon whether rescission is an "all or nothing process". In the case of TSB Bank plc v Camfield [1995] All E.R. 951, the Court of Appeal in England so held. There is conflicting authority, in particular, that of the High Court in Australia in the case of Vadasz v Pioneer Concrete (SA) Pty Limited [1995] 184 CLR 102. The position was summarised in The Law of Restitution 6th Ed. by Lord Goff of Chieveley and Jones at page 357-8 where it is said:

"It is to be hoped that the House of Lords will follow the High Court of Australia which has said that the view that 'setting aside' is an 'all or nothing process' should not be accepted ..."

8. Applications for bankruptcy orders are not proceedings in which complicated questions of fact or law should be decided. They are proceedings which should be brought where the petitioner's claim to a monetary sum is clear. House of Lords points should be left to mature consideration at trial. In the present case, when summary judgment was sought, the judge came to the conclusion, on the affirmation evidence, that there was a triable issue as to fact, if not also law as well. It is true that the full extent of the affidavit evidence in HCMP 1235 of 2001 was not, as such, before the judge below. However, he was made aware that summary judgment had been sought and had been refused and one of the judgment debtor's affirmations was before him. Hence, even though the defence which was before him leaves a great deal to be desired, it is clear the court had sufficient material to conclude that there was a triable issue. In those circumstances, it was clearly wrong that a bankruptcy order was sought. The petitioning creditor's proper course was to pursue the action, which was still in being, and take whatever steps it considered necessary in that action to bring it to a conclusion.

Hon Le Pichon JA:

9. I agree.

Hon Ma JA:

10. I agree.

(Anthony Rogers)	(Doreen Le Pichon)	(Geoffrey Ma)
Vice-President	Justice of Appeal	Justice of Appeal

Representation:

Mr Simon H W Lam, instructed by Messrs David Hui & Co., for the Debtor/Appellant

Mr Melvin Wong, instructed by Messrs Tsang, Chan & Wong,for the Petitioner/Respondent

Ms Phyllis McKenna for the Official Receiver