LI CHUN v. LI WING FUNG

CACV 271/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 271 OF 2002

(ON APPEAL FROM HCSD NO. 7 OF 2002)

____________________

____________________

_________________________

REASONS FOR JUDGMENT

_________________________

Hon Rogers VP:

1. This was an appeal against a decision of Madam Justice Kwan given on 15 May 2002. The matter before the judge was an application to set aside a statutory demand. The judge came to the conclusion that that there was a genuine dispute on substantial grounds in respect of the debt which was the subject of the statutory demand. She therefore set aside the judgment and made an order of costs in favour of the applicant. At the conclusion of the hearing of this appeal, this court dismissed the appeal and said that it would give its reasons in writing, which we now do.

The background

2. The dispute between the parties arose following a settlement agreement which was embodied in a Consent Order. The respondent in the court below, Li Wing Fung, who was the appellant in this court, had obtained a judgment on 12 April 2000, in a High Court action which he had brought against the applicant in the court below, Li Chun. The judgment was for the sums of US$229,880.00 and US$319,120.00 making a total of US$549 000.00. Interest had been ordered at the rate of 9.5% per annum from 15 August 1994 until 12 April 2000. There had also been an order for the costs of the action in favour of the respondent. There was default in the payment of the judgment sum and the respondent, Li Wing Fung, filed a bankruptcy petition against the applicant. Meanwhile the applicant, Li Chun, filed a notice of appeal. The parties then came to an overall settlement, which was embodied in the Consent Order. The Consent Order read as follows: -

"UPON the application by the Solicitors for the Plaintiff by way of Consent Summons filed on 28 November 2000 BY CONSENT IT IS ORDERED that: -

1. There be stay of execution of the Judgment dated 12 April 2000 upon the following terms: -

(1) The Defendant shall pay the Plaintiff the sum of US$860,000.00 or its equivalent in HK dollars at the time of payment being the full and final settlement of the Judgment dated 12 April 2000 by 6 instalments as follows: -

(i) the 1st instalment in the sum of US$130,000.00 or its equivalent in HK dollars at the time of payment be paid on the date of signing of the Consent Summons dated 27 November 2000;

(ii) the 2nd instalment in the sum of US$130,000.00 or its equivalent in HK dollars at the time of payment be paid on or before 31 December 2000;

(iii) the 3rd instalment in the sum of US$130,000.00 or its equivalent in HK dollars at the time of payment be paid on or before 28 February 2001;

(iv) the 4th instalment in the sum of US$160,000.00 or its equivalent in HK dollars at the time of payment be paid on or before 28 July 2001;

(v) the 5th instalment in the sum of US$155,000.00 or its equivalent in HK dollars at the time of payment be paid on or before 28 November 2001;

(vi) the 6th instalment in the sum of US$155,000.00 be paid on or before 30 March 2002;

(2) the Defendant as the Appellant shall pay the Plaintiff as the Respondent costs and disbursements under Civil Appeal No. 185 of 2000 within 7 days from date of Allocatur or within 7 days from date when the Plaintiff's said costs is agreed, as the case may be;

(3) the Defendant shall pay the Plaintiff as the Petitioner costs and disbursements under Bankruptcy Action No. HCB 2870 of 2000 within 7 days from date of Allocatur or within 7 days from date when the Plaintiff's said costs is agreed, as the case may be;

(4) the Defendant shall pay the Plaintiff costs and disbursement of these proceedings within 7 days from date of Allocatur or within 7 days from date when the Plaintiff's said costs is agreed, as the case may be;

2. In the event of default by the Defendant of any payment in accordance with paragraph 1 hereinbefore, the Plaintiff shall be at liberty to proceed to enforce the then outstanding balance of the Judgment, the Plaintiff's said costs under Civil Appeal No. 185 of 2000, the Plaintiff's said costs under Bankruptcy Action No. HCB 2870 of 2000 and the Plaintiff's said costs under these proceedings."

3. Following the Consent Order, the respondent paid the first and fourth instalments on time. The second and third instalments were made late; nevertheless, they were accepted. In respect of the fifth instalment there was a partial payment of US$38,461.54 on 10 December 2001, which was 12 days late, and the balance of HK$116,538.46 was paid on 1 February 2001, which was the same day on which the statutory demand was served. That was 64 days after the due date for payment of the fifth instalment. The sixth instalment was due on 30 March 2002, after the statutory demand was served, and payment was made before the due date.

4. The respondent's contention was that because the applicant had been late in making the payment, he was in default under the Consent Order and therefore the respondent was at liberty to lift the stay of execution of the judgment dated 12 April 2000 and enforce the then outstanding balance of that judgment. Hence the demand for a further US$357,202.04. In contrast, the applicant's contention was that if any instalment under the Consent Order was not paid in accordance with the provisions thereof, the respondent would be at liberty to enforce the outstanding balance of the judgment provided in paragraph 1 of the Consent Order, namely US $860,000.00, less the payments already made, and not the judgment as it stood on 12 April 2000. Because the interest ordered in the judgment of 12 April 2000 was at the rate of 9.5% per annum from 15 August 1994 to 12 April 2000 on the principal sum of US$549,000.00 there was a marked difference in the amount that would be claimable.

5. The judge came to the conclusion that the applicant's construction of the Consent Order was at least arguable. She said:-

"12. I am not persuaded that the respondent's construction is the only possible construction to be placed on the Consent Order. Paragraph 1 of the order used twice the expression 'the Judgment dated 12 April 2000'. Thus, it was provided that there was to be a stay of execution of that judgment and that the payment of US$860,000.00 would be in full and final settlement of that judgment. In paragraph 2 of the order, this expression was not used. It was provided that the plaintiff would be at liberty to proceed to enforce 'the then outstanding balance of the Judgment', not 'the then outstanding balance of the Judgment dated 12 April 2000'. Could the sum of US$860,000.00 which the applicant was ordered to pay in paragraph 1 be regarded as 'the Judgment' referred to in paragraph 2? It is to be noted that the Consent Order is not in the form of a Tomlin Order, the obligation to pay US$860,000.00 by six instalments was embodied in an order of the court, whether it was made by consent is not relevant. There is an argument, which cannot be summarily dismissed, that the 'then outstanding balance of the Judgment' in paragraph 2 could refer to the balance of the amount that the applicant was ordered or adjudged to pay in paragraph 1. Further, it seems to me that it does not necessarily follow from the fact that a stay of execution was imposed on the judgment dated 12 April 2000 that it must have been envisaged in paragraph 2 it was the stay of execution of that judgment which would be lifted in the event of default. It would all depend on the language used. As I see it, there is an ambiguity in the wording of paragraph 2 as to which judgment the respondent would have liberty to enforce, in the event of default of payment of the instalments in paragraph 1."

6. In my view, the judge's approach is unimpeachable. It is not for the court in considering the validity of a statutory demand to go further than consider whether there are substantial grounds giving rise to a genuine dispute as to the debt. The judge's conclusion that there was a substantial dispute appears to me to have been correct. The dispute is not a matter that could have been disposed of summarily.

7. It may be mentioned, however, that the judge went on to consider other possibilities that would give rise to difficulties in the construction put forward on behalf of the respondent. One of those matters was as to whether if the 6 instalments, which amounted to US$860,000.00, had been duly paid but that the costs referred to in paragraphs 1(2) to (4) of the Consent Order had not been paid, those circumstances would have given rise to the right to the plaintiff to go back to the judgment of 12 April 2000 and enforce the full judgment together with interest. Clearly, if that had been intended clear words would have been necessary. It was also at least arguable that the words in paragraph 2 that in event of the applicant's default of any payment, the respondent would be at liberty to proceed to enforce the then outstanding balance of the judgment meant the judgment as settled, and that this was in effect a provision for accelerated payment of the rest of the instalments.

8. In these circumstances, it was clear that the judge's conclusion was correct and therefore this appeal was dismissed.

Hon Le Pichon JA:

9. I agree.

Hon Yuen JA:

10. I agree.