RE LAM LAM

HCB 14221/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 14221 OF 2002

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(Heard Together)

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J U D G M E N T

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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.