RE JAMES CHOR CHEUNG WONG

HCB 1048/2017

[2018] HKCFI 585

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 1048 OF 2017

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D E C I S I O N

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1.  This is the hearing of a creditor’s bankruptcy petition against the debtor on failure to comply with a statutory demand. The petitioning debt is a sum of AUD114,763.92, being the legal costs and interest which the debtor was ordered to pay the petitioner pursuant two costs orders of the Supreme Court of Queensland dated 5 August 2015.

2.  The debtor disputed liability for the debt on the ground that the costs order is a foreign court order, which has not been enforced or recognized in Hong Kong, could not form the basis of the statutory demand and hence the petitioning debt.  Alternatively, he opposed the petition on the ground that he had a counterclaim, set-off or cross demand against the petitioner in a civil action, namely HCA 1676/2006 which exceeds the petitioning debt.

Foreign court order

3.  By way of background, the debtor commenced proceedings against the petitioner in Australia in August 2006 suing as trustee on behalf of his family trust.  His action was then dismissed for want of prosecution resulting in the issue of the two costs orders against him by default.  The debtor alleged that he had no knowledge of the costs orders as he had left Australia and had not taken part in the proceedings.  His allegations are basically untrue as he had filed an affidavit in those proceedings on 18 September 2008 and had taken steps to amend his statement of claim on 24 September 2008.  There was also some negotiation between the partiesin 2009.  All these are beside the point.  That the costs order had been issued against him is beyond dispute and the order has not been set aside.

4.  It is trite law that a judgment and also an order of a court of foreign jurisdiction has no direct operation in Hong Kong. It cannot be immediately enforced by execution: see Dicey, Morris & Collins [1]. There are two regimes in relation to enforcement and recognition of a foreign judgment, namely the statutory regime under the Foreign Judgments (Reciprocal Enforcement) Ordinance, Cap 319 (“FJREO”) and the common law regime.  Section 8 of FJREO provides:

“ No proceedings for the recovery of a sum payable under a foreign judgment, being a judgment to which the provisions of this Ordinance apply, other than proceedings by way of registration of the judgment, shall be entertained in any court in the Colony.”

Thus, a foreign judgment to which the provisions of FJREO apply may not be enforced in Hong Kong except by registration under the Ordinance.  Enforcement under the common law regime is therefore not available.  Under paragraphs 2 and 4 of the Foreign Judgment (Reciprocal Enforcement) Order, the provisions of FJREO were extended to cover judgments given in the Supreme Court of Queensland.  The party in whose favour a foreign judgment or order was issued has six years from the date of issue of the order to have it registered.  Hence, the two costs orders in question may only be enforceable in Hong Kong upon registration.  As the two costs orders have not been registered, they may not be enforced by the Hong Kong courts.

5.  Mr Hart, solicitor for the petitioner, submitted that there is no requirement to register a foreign order in Hong Kong before it may be used to found a statutory demand, as opposed to enforcing them by other usual means, such as by way of a charging order or garnishee proceedings.   Mr Fan, counsel for the debtor argued otherwise.  He referred me to the case of In re A Judgment Debtor [2].  That case was about construction of sections 2(2) and 6 of the English Foreign Judgments (Reciprocal Enforcement) Act 1933, which are identical to sections 4(2) and 8 respectively of our FJREO.  In that case, the creditor obtained a judgment from a competent court in France.  After having registered it in England, he issued a bankruptcy notice against the debtor which was set aside by the Deputy Registrar.  The creditor appealed.

6.  Greene MR examined the pre-1933 legislation on this subject, particularly the Judgments (Extension) Act 1868 and the Administration of Justice Act 1920.  For convenience, I quote hereunder section 2(2) of the English Foreign Judgments (Reciprocal Enforcement) Act 1933, which is equivalent to sections 4(2) of our FJREO.  It reads:

“ Subject to the provisions of this Act with respect to the setting aside of registration—

(a) a registered judgment shall, for the purposes of execution, be of the same force and effect; and

(b) proceedings may be taken on a registered judgment; and

(c) the sum for which a judgment is registered shall carry interest; and

(d) the registering court shall have the same control over the execution of a registered judgment;

as if the judgment had been a judgment originally given in the registering court and entered on the date of registration: …”

Comparing the language used in the equivalents of our sections 4(2) and 8 and focusing particularly on the words “execution” and “proceedings”, Greene MR said:

“ … it is to be noticed, firstly, that this section expressly gives to the registered judgment, for the purposes of execution, the same force and effect as if the judgment had originally been given in the registering Court. In the Act of 1868 no such express reference to execution is to be found. Then it is only para. (b) that uses the general word ‘proceedings,’ which was to be found in s. 3 of the Act of 1868. It will be remembered that the Act of 1868 provided that ‘all proceedings shall and may be had and taken on such certificate.’ Para. (b) of sub-s. 2 of s. 2 of the Act of 1933 makes that provision, but makes it after (a), which deals expresslywith one subject and one subject alone, to wit, execution. It was suggested that the word ‘proceedings’ in (b) must be limited to proceedings by way of execution which are dealt with in (a), not executions in the restricted sense but in the broader sense which I have already mentioned. I am quite unable so to construe the language of those two paragraphs. They are dealing under separate lettering the one with execution alone and the other with proceedings generally. The other matter on this section to which attention must be called is that para. (d), which says that ‘the registering Court shall have the same control over the execution of a registered judgment’ (which is taken in substance from s. 4 of the Act of 1868), omits the very words in that section which were held in the cases to which I have referred to have a limiting effect‌—namely, ‘but in so far only as relates to execution under this Act.’ The learned Deputy Registrar has construed the sub-section as though words to that effect were present. With all respect to him, in my opinion it is quite illegitimate to read anything of the kind into the language of this sub-section. The language taken by itself, in my opinion, quite clearly includes proceedings by way of bankruptcy proceedings initiated by a bankruptcy notice or otherwise. That is strongly confirmed by the second great point of difference between this Act and the earlier Acts to which I am now about to refer. That is this. Sect. 6 provides: ‘No proceedings for the recovery of a sum payable under a foreign judgment, being a judgment to which this part of this Act applies, other than proceedings by way of registration of the judgment, shall be entertained by any court in the United Kingdom.’ Whereas the earlier legislation still left it open to the judgment creditor, under a possible penalty, it is true, as to costs, to sue in the old way on his Scotch, Irish or Dominion judgment, under the present Act s. 6prohibits any such method of dealing with a foreign judgment if it is a judgment registrable under the Act; in other words, where the judgment is registrable under the Act, the only thing that the holder of such a judgment is entitled to do is to register it, and after registering it, of course, he obtains the rights which the Act expressly says shall follow upon registration. But, if the argument for the respondent were correct, it would produce this startling result, that it would not be open for the holder of a foreign judgment registrable under the Act ever to enforce that judgment in bankruptcy, and for this reason, that he cannot sue on it—s. 6 prevents him doing so—and the only thing he could do would be to register it; and then s. 2, sub-s. 2, according to the respondent’sargument, prohibits him from taking or does not enable him to take bankruptcy proceedings on the basis of the registered judgment. The result, therefore, would be that this Act would have placed the holders of foreign judgments, for the purpose of enforcing those judgments in bankruptcy, in a much worse position than they were in before. I should have said, of course, that s. 6 only applies to judgments for the recovery of a sum of money. It seems to me that s. 6 shows that Parliament was intending by this Act to providethat the only method of enforcing foreign judgments should be by registration. That being so, the holder of a registered judgment can do whatever s. 2 tells him that he can do. When I look at s. 2 and find clear language used which, according to its ordinary meaning, would cover a bankruptcy notice, I must decline to read into that language by implication limiting words which would cut down its effect, and cut down its effect with a result which, I venture to think, cannot possibly have been intended by the Legislature—namely, of depriving the holder of a foreign judgment of valuable rights with regard to its enforcement which he had previously possessed.”

Then, the Master of the Rolls allowed the appeal holding that a bankruptcy notice, based upon a registered judgment cannot be set aside. 

7.  Mr Hart argued that In re A Judgment Debtor is an old case decided under a different bankruptcy regime in the United Kingdom and has not been cited in any cases in Hong Kong.  He submitted that according to Crystal and Nicholson, Handbook on Bankruptcy Law and Practice [3], under the former bankruptcy regime, petitions were founded on bankruptcy notices, rather than statutory demands and bankruptcy notices had to be issued in the court.  For a bankruptcy notice to be issued, the creditor had tohave obtained a final judgment or order against the debtor, where execution had not been stayed.  That was why in In re A Judgment Debtor most of the material concerned whether a judgment was limited to an English judgment to found a bankruptcy notice.  He submitted that that authority is of no assistance in the present case.  I respectfully disagree.  Whether the bankruptcy notice had to be issued in the court is, in my view, neither here nor there in a case where construction of a similar statute is concerned. 

8.  The important point of construction arising from this judgment, insofar as the present case is concerned, is that the word “proceedings” in section 4(2) and section 8 is not to be read as being limited to execution whether in the broad or narrow sense.  The word has to be given its ordinary meaning and include bankruptcy proceedings.  Even though In re A Judgment Debtor is a case in which the foreign judgment had been registered, registration has no bearing on the construction of these provisions.  If a judgment has not been registered, the court will not entertain its use as a basis for issue of a statutory demand in bankruptcy proceedings.  Accordingly, a bankruptcy petition on failure to comply with a statutory demand founded on an unregistered foreign court order is misconceived.  On this ground alone, the petition must be dismissed. 

Discussion

9.  I now turn to the debtor’s alternative ground of opposition.  The debtor claimed that he had a counterclaim or cross-claim in HCA 1676/2006 against the petitioner exceeding the petitioning debt.  By way of background, the debtor commenced those proceedings in 2006.  That was about the same time as he commenced the Australian proceedings.  Both actions went dormant, except that the Australian proceedings were struck out by the petitioner resulting in the issue of the two costs orders.  Obviously, there were negotiations between the parties as late as 2009 as the parties’ solicitors’ correspondence show.

10.  The debtor’s case is that the petitioner is his brother-in-law.  In 1995, they agreed to jointly purchase a property in Discovery Bay in the name of the petitioner who would hold a portion of the interest in the property on trust for him according to his contribution to the purchase price.  Pursuant to that oral agreement, he paid a deposit of $100,000 to the vendor’s solicitors, Messrs Fairbairn Catley Low & Kong, on 19 November 1995.  On 30 December 1995, he paid a further sum of $615,230 by cashier order as his contribution to the purchase price to the vendor Lai Hing Kong and another sum of $14,770 by cashier order to Messrs Fairbairn Catley Low & Kong.  His total contribution was therefore $730,000.  He exhibited copies of those two cashier orders in his affirmation.  He further alleged that as property price escalated, the petitioner refused to acknowledge his interest in the property and requested him to treat his contribution as a loan.  However, the petitioner never followed up and he kept waiting until his patience was exhausted.  Then he commenced proceedings in HCA 1676/2006.  His case is well supported by documentary evidence insofar as his contribution of $630,000 is concerned.

11.  The petitioner denied there was any oral agreement to jointly purchase the property.  He accepted that the debtor contributed $630,000 to enable him to complete the purchase but disputed the nature of that contribution.  His case is that upon his return from Australia, he wanted to purchase a property.  He asked his mother, who has migrated to Australia, for a loan.  The mother agreed and instructed his elder brother to give him the money.  His elder brother was executor of their father’s estate which included a property in Catchick Street to be inherited by the mother.  When the mother emigrated to Australia in 1983, she authorised the brother to sell the property.  His brother sold the property in 1992 for $750,000 and paid the mother $180,000 holding the balance of $570,000 pending her further instruction.  Later, with the mother’s consent, the brother used some of her money together with his own to jointly invest in a rental property with the debtor.  In December1993, that rental property was sold for a profit.  His brother’s share was $837,787.10 which was kept by the debtor. When the mother agreed to lend money to the petitioner, the elder brother told the debtor to transfer $570,000 to the petitioner’s bank account.  Thus the sum of $570,000 was the mother’s money and not the debtor’s.  The petitioner’s case is not supported by any documentary evidence.  The sum of $570,000 which he alleged was his own money borrowed from his mother for the purchase of the property is at odd with the documented payment by the debtor of the sum of $630,000 to complete the purchase of the property. 

12.  On balance, the petitioner does not appear to have a credible defence to the debtor’s claim in HCA 1676/2006.  In other words, the debtor appears to have a good counterclaim or cross-claim against the petitioner exceeding the petitioning debt.  On this alternative case, the debtor has shown that the petitioning debt is disputed on substantial ground.

Conclusion

13.  For the above reasons, the petition is dismissed with costs to the debtor.