THE BANK OF TOKYO LTD v. AIK SAN REALTY LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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DECISION

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1. This is an appeal from a Master, seeking the discharge of 4 charging orders on shares made under the provisions of rule 2, Order 50 of the Rules of the Supreme Court. Mr. Yu, for the appellant, has argued only one point (which was not I think raised before the Master) namely, the vires of rule 2, although he did not concede that the appellant has a beneficial interest in the securities charged.

2. Mr. Yu's argument is based upon a distinction between "what" and "how". In essence, "what" is a right given or defined by law; "how" is the procedure by which such a right may be enforced. It is only the "how" said Mr. Yu, that the Rules Committee is empowered, under s. 54 of the Supreme Court Ordinance, to prescribe. The Committee may not by rules introduce a "what" or right not elsewhere provided for by law.

3. Mr. Yu took me through the history of Order 50 in England. The Judgments Acts of 1838 and 1840 first provided for securities to be charged. Before that a court had no power by statute, at common law or in equity to charge any securities. The Supreme Court of Judicature (Consolidation) Act 1925 (which I shall call the 1925 Act) by s. 18 conferred on the courts the existing jurisdiction under the Judgments Acts, and by s. 99 provided for the making of Rules of Court for regulating and prescribing procedure and practice.

4. The Rules of the Supreme Court (Revision) 1965 were made pursuant to s. 99 of the 1925 Act. The Rules themselves, which included order 50, were made under paragraph 1(1) of Statutory Instrument 1965 No. 1776. Again pursuant to s.99, by paragraph 1(2) of the same Instrument specified enactments, including the Judgments Acts, were repealed.

5. Mr. Yu contended that s. 99 of the 1925 Act empowered the Rules Committee only to make rules regulating "how" securities should be charged. The power to impose a charging order, the matter on which the rules themselves bite, was derived from the Judgments Acts through the 1925 Act. Thus, it was necessary to make the rule before repealing the Judgments Acts or the Rule Committee would have been without power.

6. Turning then to Hong Kong, Mr. Yu argued that there is no similar statutory power to underpin our order 50, rule 2. Section 54 of the Supreme Court ordinance confines the Rules Committee to regulating and prescribing practice and procedure. Not even s. 54 (2)(h), for regulating the execution of process of the Supreme Court, confers a power to make substantive law. Mr. Yu pointed out that sections 20, 21, 21A and 21B of the Ordinance specifically confer jurisdiction to impose charges on land, to attach debts, to imprison debtors and to make prohibition orders. If statutory power is required for these forms of execution, is it not needed, he suggests, in relation to the charging of securities.

7. For the respondent, Mr. Wong thought he found two basic flaws in Mr. Yu's arguments. First, it is inherent that there must be a right to which the rules may attach. However, using the analogy of mother and child, Mr. Wong said that, according to Mr. Yu, the English Order 50 having been born its mother, the combined Judgments Acts, was then done away with. The rules must still be supported by some right or have some source and that must be within s. 99 of the 1925 Act.

8. That analogy, if I may say so, is somewhat unfortunate. Many mothers die, sometimes in childbirth, while their children continue to live and flourish. I see no flaw. The jurisdiction was already conferred generally on the courts by s. 18 of the 1925 Act from which authority for Order 50 could still be derived if it is necessary. The repeal of the Judgments Acts under s. 99 was a useful tidying-up exercise, the Acts being unwieldy and difficult to read, and having served their purpose.

9. Secondly, Mr. Wong argued that the English Rule Committee defined securities under Order 50 to include debentures. The Judgments Acts, however, did not cover debentures: Sellar v Charles Bright & Co. Ltd. ⁽¹⁾ If those Acts are the source of the right to charge securities, the Rule Committee had no power to widen the definition. Therefore, the Committee's power must derive from s. 99 of the 9125 Act.

10. In the Tyrone Crystal Ltd. v European Asian Bank and Anor., Action No. 11547 of 1982, Mantell J. in considering s. 54 (2)(h) and (i) decided that the word "regulate" comprehended the power to make substantive law.

11. Mr. Wong drew my attention to this case but I think attached little weight to it and certainly, authorities cited by Mr. Yu, such as the Inland Revenue Commissioners v National Federation of Self-Employed and Small Business Ltd. ⁽²⁾ and The British South Africa Company v. The Companhia de Mocambique and Ors. ⁽³⁾ are against it. In the Inland Revenue Commissioners' case, in particular, Lord Diplock said:-

"Order 53 was made by the Rules Committee under the powers conferred upon them by section 99 of the 1925 Act and section 10 of the Administration of Justice (Miscellaneous Provisions) Act 1938. Rules of court made under these sections are concerned with procedure and practice only; they cannot alter substantive law, nor can they extend the jurisdiction of the High Court."

12. I think that this case was not cited to Mantell J. and the word "Regulate" of course, appears in s. 99.

13. In the Wardley Ltd. and Ors. v. Aik San Realty and. Anr., Action No. 379 of 1984, Mr. Yu took the point now in issue before Hunter J. who said:-

"Mr. Yu's analysis of the English position is correct up to 1925 but not thereafter. By section 99(1) of the Judicature Act 1925 the English Rules Committee was empowered to make rules regulating "the procedure and practice to be followed ... in the High Court" in any case where that Court had jurisdiction ss(a). It was specifically empowered to make rules in respect of the matters covered by the statutues enumerated in the First Schedule to the Act, ss(f): and after making such rules to repeal any such enactments, ss(g). The relevant sections of the 1838 Act and the 1940 Act are listed in the First Schedule. The power to repeal those Acts given by section 99(1)(g) makes it quite plain to my mind that after 1925 the Rules Committee's operative power stemmed from section 99 itself, and not from those Acts. This again was demonstrated in 1965 when by 1965 S.I. No. 1776 the Acts were replaced by a rule identical to our 0. 52 r.2.

 

       In my judgment the effect of section 54(1) of the Supreme Court Ordinance (Cap. 4), which is derived from section 99 of the 1925 Act, is to give the Rules Committee in Hong Kong the same general power as was vested in their colleagues in England; with the specific power to make rules relating to the execution of the process of the Supreme Court (the equivalent of section 99(1) (f)) being found in (h). Unlike the position in Mohan v. McElney (1983) H. K. L. R. 308 there is no conflict between the material rule and any substantive law. In my judgment 0.52 r.2 was properly and validly made."

14. The point I think, was not argued so extensively before the learned Judge. Further there appears to be an error in his judgment because s. 99 (1)(f) confers a power to make rules in situations already governed by other enactments; s. 54(2)(h) relates to the execution of process.

15. I have no difficulty therefore in deciding that s. 99 of the 1925 Act and s. 54 of Cap. 4 do not confer on the respective Rules Committees power to make rules creating or affecting substantive rights. As Mr. Yu has argued, the power must be derived from another source.

16. Is there such a source in Hong Kong that will underpin rule 2? Mr. Wong has traced the history of our Rules since Ordinance No. 13 of 1873 introduced the Code of Civil Procedure which in Chapter XII, paragraph LXXXVI, 5, provided for the attachment of debts and shares. Ordinance No. 3 of 1901 established a Code of Civil Procedure which enshrined the then repealed Ordinance No. 13. Chapter XVI of the later Ordinance provided for execution and in particular for attachment of shares (para. 377) and the method of such attachment (para. 402).

17. Thus, there was jurisdiction in Hong Kong for execution against shares by way of attachment under the Code of Civil procedure before the Supreme Court Ordinances of 1948 and 1964. The 1964 Ordinance contained a rule making provision in s. 38 which was in substantially similar terms to s. 99 of the 1925 Act until sub-section (1)(h) onwards whereby a wholly different set of powers was conferred, in particular:

18. Mr. Wong pointed out that para. (j) has no counterpart in s. 99 of the 1925 Act and argued that it conferred on the Rules Committee power to prescribe modes of enforcing any judgment, that is the "what", as well as the manner in which or "how" they should be carried out. Equally, para. (q) is also a matter of substantive law with power conferred on the Committee.

19. In 1967 the Rules Committee made the Rules of the Supreme Court 1967, containing Order 50, and revoked the Code of Civil procedure.

20. The current Supreme Court Ordinance came into effect in 1967. It provided for rules in s. 54, the material parts of which read:

21. Mr. Wong suggested that both paras. (h) and (i) are sufficient authority for Order 50 rule 2; para. (h) because for historical reasons the courts have had jurisdiction to impose charging orders; para. (i) because it claws back powers previously conferred.

22. Mr. Yu made 2 principal points. First, he challenged Mr. Wong's historical basis. He pointed out that s. 371 of Ordinance No. 3 of 1901 provided for imprisonment of a debtor. Therefore, the power to make rules relating to imprisonment must, in like manner as charging shares, be reposed in the Rules Committee, yet the legislature has recently seen fit to enact s. 21A of Cap. 4.

23. Well, like Mr. Wong's mother and baby analogy, this main is not a happy example. I think I may take judicial notice of the fact that there was considerable debate about imprisonment for debt. The legislature saw fit to, and did, amend the law. Doubtless the amendments could have been effected by rules made by the Rules Committee, but that does not prevent the legislature itself amending substantive law or, incidentally, as it did on this occasion making rules.

24. Secondly, Mr. Yu referred to Gobind Mohan and Anr. v. Brian Shane McElney and Ors. ⁽⁴⁾ where Cons, J. A. in dealing; with the vires of Order 20, rules 5, said on p. 312 of the report:-

"Insofar as 0.20 r.5 relates to new causes of action it is ultra vires. If the discretion apparently granted thereby were exercised to allow the introduction of an action that had already become barred by the passage of time the effect would be to deprive the defendant of something that is, in the words of their Lordships, "in every sense a right". That right is of course derived from the Limitation ordinance. Once that is established sub-rule(5) must inevitably fall, and for two reasons. Firstly, there is no authority to support it, s. 54 of the Supreme Court Ordinance being confined to procedure and practice. Secondly, it would be inconsistent with the provisions of the Limitation ordinance and s. 28(b) of the Interpretations and General Clauses Ordinance provides that "no subsidiary legislation", which by definition includes rules of court, "shall be inconsistent with the provisions of any ordinance"."

25. Mr. Wong did not, I think, really dispute the first reason there given. As to the second, Mr. Yu said, that, insofar as 0.50 provides for the method of obtaining a charging order, it is not to be criticised; but insofar as it purports to affect or create substantive rights, for example, by restricting the right of a debtor to get his shares, it is in conflict with substantive law.

26. I must confess I find that argument slightly difficult to follow. There is no conflict with the provisions of any ordinance, although possibly with common law or equity. And if the Rules Committee is properly empowered to prescribe "how" a charging order shall be obtained because it is a right to which a judgment creditor is entitled, it is hardly logical to object to the debtor being deprived of his shares, for that is the natural consequence of the right.

27. As I have indicated, Mr. Wong did not really rely on s.54 giving the Rules Committee power to make or alter substantive law. He relied on his historical analysis. And it is an analysis which I accept. That the legislature saw fit to enact sections 20, 21, 21A and 21B of Cap. 4, as Mr. Yu pointed out, does not in ray view detract from Mr. Wong's argument.

28. The 2 Civil Procedure Codes, which were made by Ordinance, provided for the attachment of shares. That, I apprehend, is the right or "what" which a judgment creditor was and is entitled to have enforced. A charging order is simply a method of enforcing that right or the "how". It is a more modern method, the method under s. 402 of Ordinance No. 3 of 1901 having been a simple form of stop order. It is something wholly within the contemplation of s. 54 (1)(h) and (i); either by virtue of the right to attach shares conferred by the earlier Civil procedure Codes, or by virtue of s. 38(1)(j) of the earlier Supreme Court ordinances the wording of which was far wider than anything to be found in s. 99 of the 1925 Act.

29. That view is, of course, in accord with the view of Kempster J. (as he then was) who, in an unreported decision of the Full Court, referred to by Mantell J. in the Tyrone Crystal case, where Order 49(b) was considered, said:-

That, of course, encapsulates the matter much more neatly than I have done.

30. That leaves outstanding Mr. Wong's point about the extension b y the English Rule Committee of securities to include debentures. For the reasons 1 have already given, I do not think section 99 confers the necessary power on the Committee. To that extent, rule 2 of the English Rules may be ultra vires.

31. In those circumstances, the appeal will be dismissed.

(1)     1904 2 K.B. 446

(2)     1982 A.C. 617

(3)     1893 A.C. 602

(4)     1983 H.KL.R.308