SKK (H.K.) CO. LTD AND ANOTHER v. TSUI PO HING AND ANOTHER

HCMP 934/2019

[2021] HKCFI 1676

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 934 OF 2019

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BETWEEN

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J U D G M E N T

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1.  By Originating Summons dated 26 June 2019 (“OS”), the plaintiffs (“Ps”) apply for an order against the 1^st defendant (“D1”) and the 2^nd defendant (“D2”) (together “Ds”) that unless they pay the “1^st to 4^th Judgment Debts” (as defined in §§5(4), 7 - 9 below), which amounted to HK$9,124,377.52 as at 26 June 2019, within 28 days of the order to be made herein, there be an order for sale in respect of the property known as Workshop 13 on 2^nd Floor and Flat Roof, Harry Industrial Building, Nos 49-51 Au Pui Wan Street, Fo Tan, Sha Tin, New Territories (“Property”).

2.  The Property has been subject to 4 charging orders absolute previously obtained by Ps (collectively “Charging Orders”).  Ds are the registered owners of the Property.  Protech Industrial Co (“Protech”) was a partnership formed by Ds to carry on business with Ps.

FACTUAL BACKGROUND

3.  P1 has since 1998 been embroiled in litigations with Ds.  The background to their disputes have been fully set out in the Judgment of To J in HCA 16850/1998 (“1998 Case”) dated 18 January 2012 (“CFI Judgment”) and will not be repeated here. 

4.  In the 1998 Case, P1 claimed over HK$8 million against Ds (trading as Protech) in respect of 64 unpaid invoices issued during the period from 11 September 1995 to 20 January 1998 (“Invoices”).  Ds counterclaimed HK$27 million for the works done under 22 contracts and damages for breach of 2 contracts[1].  The disputes between the parties were fully investigated at the trial which took 11 days (from 15 August to 21 October 2011) before To J.  The CFI Judgment runs to 109 pages.

5.  In the CFI judgment, To J considered the pleadings and the evidence adduced by P1 and Ds including Ds’ counterclaims and their assertion that the “7 Cheques’ Sum” (as defined in sub-§(1) below) could be treated as payment by Ds in respect of the Invoices[2].  Specifically, the learned Judge held that:

(1) Ds failed to prove that the sum of HK$3,228,048.57, being the proceeds of the 7 cheques issued by Ds in favour of P1 (“7 Cheques’ Sum”) was part payment made by Ds in respect of the Invoices and, to the contrary, the 7 Cheques’ Sum should be deducted from the amount said to have been paid by Ds to P1[3].

(2) P1 succeeded in its claim for payment due under the Invoices in the amount of HK$8,163,580.70[4].

(3) Ds succeeded in proving their counterclaim to the extent of HK$6,630,672.73[5].

(4) Taking into account the amount payable by P1 to Ds, Ds were liable to pay HK$1,532,907.97 to P1 together with interest at 12.5% p.a. from 5 October 1998 until judgment and, thereafter, at judgment rate[6] (“1^st Judgment Debt”).    

Judgment Debts and Charging Orders

6.  Ds appealed against the CFI Judgment, which was dismissed by the Court of Appeal in CACV 36/2012 on 14 October 2016 with costs to be paid by Ds.  Following Ds’ failure to pay the 1^st Judgment Debt, P1 obtained the charging order nisi over the Property on 18 December 2017, which was made absolute on 17 January 2018 (“1^st Charging Order”).  Ds were ordered to pay HK$9,100 as the costs of the application. 

7.  On 20 January 2017, the Court of Appeal dismissed Ds’ application for leave to appeal to the Court of Final Appeal with costs assessed at HK$40,000 (“2^nd Judgment Debt”).  Ds did not pay the 2^nd Judgment Debt whereupon P1 obtained a charging order nisi over the Property on 18 December 2017, which was made absolute on 17 January 2018 (“2^nd Charging Order”).  Ds were ordered to pay HK$9,100 as the costs of the application.

8.  On 6 March 2017, Stone J dismissed Ds’ claim against Ps and ordered costs to be paid by Ds to Ps in HCCL 42/2004 (“2004 Case”).  On 21 July 2009, the costs of the 2004 Case was taxed at HK$1,264,969.50 (“3^rd Judgment Debt”).  Following Ds’ failure to pay the 3^rd Judgment Debt, Ps obtained a charging order nisi over the Property on 16 March 2018, which was made absolute on 11 April 2018 (“3^rd Charging Order”).  Ds were ordered to pay costs in the amount of HK$9,100. 

9.  Ds’ appeal against Stone J’s judgment was dismissed by the Court of Appeal in CACV 101/2007 on 27 November 2009 with costs.  On 12 July 2010, the costs of the appeal were taxed at HK$570,000 (“4^th Judgment Debt”).  Following Ds’ failure to pay the 4^th Judgment Debt, Ps obtained the charging order nisi over the Property on 16 April 2018, which was made absolute on 10 May 2018 (“4^th Charging Order”).  Ds were ordered to pay the costs in the amount of HK$9,100.

10.  As at 26 June 2019, the 1^st to 4^th Judgment Debts, together with interest accrued thereon and the costs of the application for the 4 Charging Orders, amounted to HK$8,594,874.71.

11.  Taking into account the interest from 27 June 2019 up to the date of the hearing, the amount owed by Ds is HK$9,387,611.71.

12.  The 1^st to 4^th Judgment Debts remain unpaid.  At the hearing, D1 and D2 inform the Court that they have no financial means to pay the Judgment Debts. 

DISCUSSION

13.  Mr Gary Lam, counsel for Ps, submits that the 1^st to 4^th Judgment Debts are not, and can no longer be, subject to any appeal.  The doctrine of res judicata applies to bar Ds from re-opening the issues already decided by the Court in the 1998 Case and the 2004 Case. 

14.  Ds appear in person.  As far as I understand their contentions, Ds oppose the OS on the following 4 grounds:

(1) The application falls foul of the requirements of the Land Registration Ordinance (Cap 128) (“LRO”) which governs priority of the encumbrances registered over the Property.  Until the “Legal Charge” (as defined in §20(1) below) (a prior encumbrance) registered against the Property has been removed, Ps cannot enforce the Charging Orders (LRO ground).

(2) Article 105 of the Basic Law protects private property rights.  Ps have no right to retain the 7 Cheques’ Sum, and Ds are entitled to counterclaim the same against Ps (7 Cheques’ Sum ground).

(3) Ds did not owe the 1^st Judgment Debt as such amount was payable by Protech.  Ps cannot enforce the Charging Orders by seeking an order for sale until they first “bankrupt” Protech (Protech ground).

(4) Ds have 3 counterclaims against Ps for (a) HK$31,139,661.06, being compensation for Ps’ failure to provide a credit line of HK$11,004,212.79 (“Credit Line”) to Ds from 5 October 1998 to 25 May 2021 at contractual interest of 12.5% p.a. (“1^st Claim”); (b) HK$1,879,835.27, being the difference between the Credit Line and the 1^st Judgment Debt as compensation for wrongful enforcement of the Charging Orders (“2^nd Claim”); and (c) HK$12,362,762.73, being interest on the 7 Cheques’ Sum at 12.5% p.a. (“3^rd Claim”) (Counterclaims ground).    

Applicable principles

15.  The principles are well established.  The enforcement of a charging order by sale of the property charged is governed by Order 88 rule 5A of the Rules of the High Court (Cap 4A), which requires a judgment creditor to commence fresh proceedings by originating summons.  The purposes of going through such procedure are threefold:

(1) To enable the Court to judge whether there is sufficient equity in the property for the charge to justify ordering a sale;

(2) To ensure that if possible, the Court will be in possession of sufficient evidence at the first appointment under the originating summons to make an immediate order for sale; and

(3) To ensure that the rights of third party occupiers are protected.

(Hong Kong Civil Procedure 2021, §88/5A/2)

16.  Mr Lam submits that in deciding whether to exercise its discretion to make an order for sale, the Court will take into account a judgment creditor’s prima facie entitlement to enforce his judgment by a charging order.  While the Court has to weigh carefully the competing equities of the parties, there must be good reason to justify why the Court should on the one hand, grant an order in a party’s favour but on the other hand, refuse to enforce that very order (Union Finance Ltd v Leung Wai Ling & anor [2000] 2 HKC 821 at 823G, 824A-B, per Chung J). 

17.  With these principles in mind, I turn to the merit of the application and the contentions raised by Ds.   

Whether to make an order for sale

18.  In my judgment, an order for sale of the Property is appropriate and amply justified in view of the facts and matters discussed in §§19 – 23 below.   

19.  First, Ds admit that they do not have the financial means to pay the 1^st to 4^th Judgment Debts.  Therefore, an order for sale of the Property represents the only means through which Ps can recover the amounts owed by Ds.

20.  Second, there is sufficient equity in the Property.  Apart from the Charging Orders, there are 2 other charges registered against the Property:

(1) The legal charge dated 17 March 1995 (“Legal Charge”) whereby Ds acknowledged that they (trading as Protech) were indebted to P1 in the sum of HK$11,004,212.79 (“Secured Sum”) as at 1 January 1995, and had applied to P1 for general credit facilities which P1 agreed to extend to Ds.  In consideration thereof, Ds agreed to charge the Property to P1 as security for their obligation to pay the Secured Sum upon P1’s demand.  The Secured Sum was repaid in full in 1996.

(2) A Memorandum of Charge dated 13 March 2015 (“Memorandum of Charge”) whereby the manager of the building where the Property is situated exercised its right to register a charge against the Property in respect of arrears of management fees and contribution of improvement fund from July 2013 to March 2015 in the sum of HK$17,491.80.  Taking into account the interest accrued thereon, as at 30 May 2019, the amount owed was HK$88,066.71.

21.  According to the updated valuation obtained by Ps, as at 23 April 2021, the market value of the Property was HK$3,200,000 while the value for sale under repossession of the Property was HK$2,800,000. 

22.  After payment of the expenses to be incurred in selling the Property and the amount owed to the manager (subject matter of the Memorandum of Charge), there is still a significant equity or surplus which can be applied to pay the 1^st to 4^th Judgment Debts.

23.  Third, there is no third party interest in the Property.  Ds have been the only registered owners of the Property and have declared in the Legal Charge that they are the only beneficial owners of the Property.  As confirmed by Ds at the hearing, the Property has all along been used by Ds. 

24.  I do not find any of the contentions raised by Ds constitute a valid ground in opposition to the OS, for the reasons discussed in §§26 - 36 below.

Ds’ contentions

25.  Before dealing with the 4 grounds raised by Ds in opposition to the OS, I shall deal with a mistake contained in §34 of affirmation of Shinji Nishida dated 26 June 2019 (“Nishida 1^st”) where he said that the Secured Sum formed part of Ps’ claim in the 1998 Case and had been taken into account in the 1^st Judgment Debt, such that “there is no other sum due to [P1] under the Legal Charge”. 

(1) D1 in his affirmation dated 5 August 2019 pointed out the fact that the Secured Sum had already been repaid. 

(2) After the mistake was pointed out, Ps readily acknowledged the mistake in §4 of the 2^nd affirmation of Shinji Nishida (“Nishida 2^nd”) and confirmed that the Secured Sum did not form part of P1’s claim in the 1998 Case.  This is therefore not a point which can be maintained by Ds. 

(3) That said, I do not think it is just or fair to require Ds to bear the costs of and occasioned by the mistake made by Ps.  Mr Lam does not oppose to the Court disallowing the costs occasioned by the mistake.

LRO ground

26.  The LRO ground is misconceived. 

(1) P1 has not sought to enforce the Legal Charge in these proceedings.  This has been made clear in Nishida 1^st. 

(2) While it is correct that the Legal Charge was a prior encumbrance registered against the Property, its existence does not affect Ps’ right to enforce the Charging Orders. All that it means is that if and to the extent that the Secured Sum has not been paid, P1 (qua chargee of the Legal Charge) has priority to be paid out of the proceeds of the sale of the Property over the 1^st to 4^th Judgment Debts owed to Ps. 

(3) Contrary to Ds’ assertion, the fact that the Legal Charge remains registered against the Property would not prevent Ps from enforcing the Charging Orders, whether as alleged or at all. 

7 Cheques’ Sum ground

27.  The 7 Cheques’ Sum was one of the issues raised by Ds in the 1998 Case and was determined by the Court in that:

(1) The invoices mentioned in D2’s Affirmation §13(3) were amongst the invoices pleaded in P1’s statement of claim (§12) and in Ds’ defence (§§13-16) both filed in the 1998 Case. 

(2) Ds’ contention that the 7 Cheques Sum should be deducted from the amounts claimed in 1998 Case had been considered by To J and was rejected for the reasons stated in §§60 - 63 of the CFI Judgment. 

(3) Ds’ appeal against the CFI Judgment was dismissed by the Court of Appeal in 2016 (see §6 above). 

28.  As such, Ds are barred by the doctrine of res judicata and cannot raise the same issue again or argue that To J and the Court of Appeal have not determined such issue.  Article 105 of the Basic Law is not engaged. 

Protech ground

29.  As stated in the CFI Judgment, Ds were partners of Protech.  As such partners, Ds were liable to pay the debts owed by Protech (s 11 of the Partnership Ordinance (Cap 38)). Indeed, it can be seen from the CFI Judgment that Ds fought the 1998 Case on the basis that they were personally liable for the debts owed by Protech. 

30.  In any event, Ds’ liability to pay the Invoices was one of the issues determined by To J.  It is not now open to Ds to re-open the same issue in these proceedings. 

31.  As for Ds’ suggestion that Ps cannot enforce the Charging Orders until after they first “bankrupt” Protech, it is ill founded. 

(1) Protech was a partnership constituted by Ds and did not have separate legal existence.  It was open to P1 to enforce the obligations of Protech by suing Ds in their capacity as partners of Protech in the 1998 Case.

(2) As partners of Protech, Ds are personally liable for all the debts and liabilities owed by Protech.  It is unnecessary for P1 to sue or to “bankrupt” Protech before they enforce the Charging Orders. 

Counterclaims ground

32.  I do not think any of the counterclaims constitute a valid ground in opposition to the OS for the following reasons. 

33.  First, the 1^st to 4^th Judgment Debts are binding and enforceable by Ps against Ds.  As such, unless Ds are able to pay the 1^st to 4^th Judgment Debts in full, Ps are entitled to enforce the Charging Orders by seeking an order for sale. 

34.  Second, Ds’ counterclaims are, at their highest, unproved claims.  Unless and until Ds are able to prove such counterclaims, they are not and cannot be treated as payment for the 1^st to 4^th Judgment Debts.

35.  Third, on Ds’ own case, the counterclaims all arose out of the events which took place between 1996 and 1998.  By virtue of s 4 of the Limitation Ordinance (Cap 347), the 6-year limitation period for making the claims have long expired since 2002 and 2004 and, therefore, are liable to be struck out even if Ds now make such claims against Ps.    

36.  Fourth, I do not think there is any merit in Ds’ counterclaims:

(1) The 1^st Claim: Ds have not identified the basis for suggesting that Ps were obliged to provide the Credit Line to them.  To the contrary, it appears from the Legal Charge that the Credit Line was provided to Ds for the purpose of repaying the Secured Sum, and was applied by Ds for such purpose.  There is therefore no basis to suggest that Ps acted in breach of any agreement.  Even if Ds are able to prove that Ps acted in breach of an agreement for failing to provide the Credit Line, they fail to demonstrate that the alleged breach has caused the alleged or any loss or damage to Ds. 

(2) The 2^nd Claim: For the reasons stated in §§18 - 24 above, Ps are entitled to enforce the Charging Orders.  There is therefore no basis to suggest that the enforcement of the Charging Orders is “wrongful”.  In any event, there is no causal link between the alleged breach and the HK$1,879,835.27 claimed by Ds.

(3) The 3^rd Claim: For the reasons stated in §§27 - 28 above, there is no basis for Ds to claim the 7 Cheques’ Sum or the alleged interest accrued on such Sum. 

37.  The above points are sufficient to dispose of the counterclaims raised by Ds.  If, contrary to my holding, To J did not determine the issue relating to the 7 Cheques’ Sum (ie 3^rd Claim), it seems to me that Ds are nevertheless barred by the doctrine of res judicata in the wider sense or Henderson v Henderson abuse in raising the 3^rd Claim and the 1^st  Claim (which was not raised in the 1998 Case and the 2004 Case) in these proceedings.

38.  The principles governing the doctrine have been fully explained by Ma CJ  in Ko Hon Yue v Chiu Pik Yuk (2012) 15 HKCFAR 72, §83, and may be summarised as follows:

(1) The doctrine is founded on an abuse of process and, as such, it ought only to be applied when the facts are such as to amount to an abuse.

(2) An abuse is found to exist in seeking to raise in subsequent proceedings claims or issues which could and should have been raised in earlier proceedings.  This abuse will usually take the form of the other party being “vexed” (or in some cases, the terms “oppressed”, “unjustly harassed” or “unjustly hounded” are used) by the subsequent set of proceedings.

(3) The abuse can also take the form of the administration of justice being brought into disrepute.

(4) In considering this type of abuse, the Court is required to assess a number of factors and balance competing interests in the exercise of a discretion. 

39.  It is an abuse of process for Ds to seek to raise the 1^st and 3^rd Claims in these proceedings, given that:

(1) The relationship between Ps and Ds and the disputes arising from such relationship had been subject matters of the 1998 Case and the 2004 Case, which were finally determined by To J and Stone J.  It was open to Ds to make the counterclaims in the 1998 Case or the 2004 Case so that the issues could be investigated and determined once and for all. 

(2) No explanation has been put forward by Ds as to why they did not make the 1^st and 3^rd Claims in the 1998 Case or the 2004 Case. 

(3) It would be unjust to allow Ds to rely on the 1^st and 3^rd Claims in opposition to the OS as these proceedings, when they had plenty opportunity to do litigate their Claim but did not do so in the past 16 years.

(4) If Ds were allowed to raise the 1^st and 3^rd Claims now, it would be tantamount to allowing them to vex Ps again. 

D2’s Summons

40.  D2 belatedly issued a summons dated 6 May 2021 seeking to “set aside” the 1^st Charging Order and to compel Ps to return the title deeds of the Property (“Summons”) and filed another affirmation dated 6 May 2021 in support of the Summons.  This is despite the fact that at the hearing on 25 March 2021, this Court gave indulgence to D2 to file his affirmation dated 15 January 2021 after Ps had already filed their affirmation in reply on 10 September 2019, and ordered that no affirmation should be filed without leave of the Court.

41.  It seems to me that the Summons was issued far too late  and there was no justification for the delay. It is unfair for Ds to try to ambush Ps with a late application.  For this reason alone, I dismiss the Summons in limine. 

42.  Nevertheless, as Mr Lam has made submissions on the Summons, I will set out the reasons as why I consider the Summons to be wholly without merit.

43.  As regards D2’s application to “set aside” the 1^st Charging Order on the ground that he was out of jurisdiction while the 1^st Charging Order nisi was served on him at his Hong Kong address, it must be rejected.   

44.  First, the application for a charging order is not an originating process. The procedure is to apply ex parte for the charging order nisi (Order 50 rule 1(2)) and did not need to be served on Ds personally.  Once the Court makes a charging order nisi, it will order the judgment creditor to serve the order on the judgment debtor to notify the latter to show cause (Order 50 rule 2).  Personal service of the charging order nisi is not required (Hong Kong Civil Procedure 2021 §50/9A/36). 

45.  Second, the proper avenue to set aside the 1^st Charging Order is to make the application in the 1998 Case.  Ds have never made such application.  Nor have they proffered any explanation as to why they did not make such application, if there is any merit for them to do so. 

46.  Third, the OS was issued almost 2 years ago and was served on Ds.  They plainly have knowledge of the 1^st Charging Order, which is one of the subject matters in these proceedings, and have filed affirmations in opposition to the OS.  

Delivery of title deeds

47.  In the Summons, D2 also applies for delivery of the title deeds of the Property apparently on the basis that Ds are entitled to claim the 7 Cheques Sum against Ps.  In light of my holding that Ds are not entitled to re-open or raise the 7 Cheques’ Sum, there is no basis for Ds to seek the return of the title deeds. 

48.  In any event, by virtue of clauses 2.1(k) and 4.1 of the Legal Charge, P1 is entitled to hold onto the title deeds if and for so long as there is any outstanding liability from Ds.

49.  For the reasons set out in §§40-48 above, the Summons is dismissed.

Disposition and costs

50.  No valid ground in opposition to the OS has been shown by Ds.  It is appropriate for the Court to make an order for sale as per the order sought in the Notice of Appointment to Hear Originating Summons save for the following amendments:

(1) §1 is retained: Although Ds confirm at the hearing that they do not have the financial means to pay the 1^st to 4^th Judgment Debts, D2 indicates that he wants time to find a buyer to buy the Property at the reserve price.  If this comes to fruition, Ds can obtain the agreement of Ps to proceed with the sale and pay over the sale proceeds to Ps within the 28-day period stated in §1;

(2) §(b): the words “title deeds” be deleted as it is common ground that the title deeds are in P1’s possession; and

(3) §(d): the reserve or minimum price at which the Property is to be sold is amended to HK$3,200,000 to reflect the increase in the market value as assessed by the valuer.  The words “either private treaty or” be deleted as Mr Lam confirms that Ps will seek to sell the Property by public auction. 

51.  As for costs, I make a costs order nisi that Ds shall pay the costs of and occasioned by the OS and the Summons, save that Ps are not entitled to recover 20% of the costs in preparing Nishida 1^st and all the costs in preparing Nishida 2^nd. The costs are to be assessed by way of gross sum assessment.  For this purpose, Ps are to lodge and serve a revised statement of costs for gross sum assessment within 3 days of this Judgment and Ds are to provide their comments on such statement, if any, within 7 days thereafter.  This Court will assess the costs on paper.