RE LI MAN HOO

HCB 5987/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 5987 OF 2011

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HCB 5988/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO. 5988 OF 2011

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(Heard Together)

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J U D G M E N T

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1.  The creditor was Generale De Banque Belge Pour L’Etranger (“the Belgium Bank”). It merged with the Industrial and Commercial Bank of China (Asia) Limited (“ICBC”) on 10 October 2005. The debtors are husband and wife.

The debt

2.  The petitions for bankruptcy are based on a judgment debt of this court in HCMP 5226 of 1998 (“HCMP 5226”) given on 12 February 1999 against both debtors and their companies Sino Hong Kong Cosmetics Limited (“Sino Cosmetics”) and Empire Day Limited (“Empire Day”)  jointly and severally.

3.  The judgment debt is composed of two sums, namely: (i) HK$14,811,695.14 together with interest on HK$13,780,073 at the daily rate of HK$5,485.43 from 31 December 1998 to 12 February 1999 and thereafter at judgment rate and (ii) US$27,649.72 together with interest on US$26,389 at the daily rate of US$8.24 from 31 December 1998 to 12 February 1999 and thereafter at judgment rate. 

4.  There were two credits in the sums of HK$283,440.99 and HK$10,080,619.21 on 28 February 2001 and 15 August 2001 respectively upon the realization of security properties which set off partially the judgment sums leaving an outstanding principal at HK$8,785,390.44 as at 15 August 2001.  There was no further credit or payment since then. 

5.  ICBC issued statutory demands to the debtors on 29 April 2011 demanding from them HK$16,327,083.59.  This sum is excessive as interest has also been accrued for the period from 12 February 2005 (six years after the date of judgment) and that is contrary to section 4(4) of the Limitation Ordinance, Cap 347.  However, even ignoring all the interest accrued since 15 August 2001, the outstanding principal sum as at that date was already at HK$8,785,390.44.  

6.  Attempts to effect personal service of the statutory demands failed. The solicitors of ICBC then effected service by notice of advertisement in a widely circulating Chinese newspaper on 1 August 2011.

7.  The statutory demands were not satisfied and ICBC issued these petitions against the debtors.  Debtor, Mr Li has filed affirmations to oppose the petitions.  His wife Madam Foo has also filed affirmations to adopt Mr Li’s affirmations in her opposition. 

The debtors’ opposition

8.  The debtors do not dispute the judgment debt.  They rely on an alleged settlement agreement made with Belgium Bank at the beginning of 2000.  Mr Li said he and his wife did not resist HCMP 5226 and did not appear at the hearing.  Belgium Bank then obtained the judgment against him, his wife and his companies Sino Cosmetics and Empire Day.  They then had to surrender two properties to Belgium Bank namely a parking space at Excelsior Court, Robinson Road and a flat and a parking space at Grand Garden, South Bay.

9.  Mr Li and his wife then entered into a settlement agreement with Belgium Bank at the beginning of 2000 to the effect that they would surrender the properties to the bank in return for discharge of the debt owed to the bank. 

10.  Thereafter, the properties were returned to Belgium Bank and their debt due to the bank was settled.  The reason being that the then market value of the properties was at HK$16,000,000 (which he increased to HK$20,000,000 at the hearing) and was sufficient to set off the debt.

11.  Mr Li further pointed out that since their surrender of the properties, Belgium Bank had not taken any action to seek repayment from them for more than 11 years.  They only discovered these proceedings in October 2011 upon their enquiry of ICBC on why their accounts at ICBC were suddenly frozen.  They were surprised to learn about the proceedings as they did not owe ICBC any money. 

12.  When they searched the court file of HCMP 5226, they then discovered that by an order dated 5 May 2011, the plaintiff therein had become ICBC.  Mr Li opposed the replacement of Belgium Bank by ICBC despite their merger.

13.  In order to prove that he and his wife are not indebted to Belgium Bank, he referred to their credit reports provided by the consumer credit data bank which did not show any debt due from either of them to Belgium Bank or ICBC.

14.  He also pointed out that when ICBC applied to take over the legal proceedings instituted by Belgium Bank, HCMP 5226 was not included in the schedule of legal proceedings.  ICBC’s application to take over assets was allowed on 29 November 2005, but it has not taken any action against them for about six years since then.  They rely on these matters as evidence that Belgium Bank had not included HCMP 5226 as part of the assets it transferred to ICBC.

15.  Further to the above, the debtors also rely on the law of limitation.

ICBC’s reply

16.  ICBC through its authorised manager, Mr Wan made an affidavit to reply to Mr Li’s affirmation.  Mr Wan denied that there was any settlement agreement between Belgium Bank and the debtors.  He also denied that the debtors had returned the properties to Belgium Bank to offset the judgment debt.  He said the properties were recovered by Belgium Bank through the execution of a writ of possession dated 10 April 1999 by the Bailiff. The parking space at Excelsior Court was recovered on 22 May 1999 and the flat and parking space at Grand Garden were recovered on 21 January 2000.

17.  After recovering the properties, Belgium Bank further issued a letter of demand dated 13 March 2000 to the debtors and their companies seeking a part payment of HK$2,000,000.  The letter stated that if the debtors should fail to pay as demanded, Belgium Bank would instruct a debt collector to collect payment from them.  Belgium Bank then sold the two properties in 2001 and applied the net sale proceeds to reduce the judgment debt and interest accrued as aforesaid.

18.  Regarding the substitution of the name of the plaintiff in HCMP 5226, Mr Wan referred to the terms of the merger of Belgium Bank and ICBC and said that ICBC was entitled to any judgment awarded to Belgium Bank which included the judgment in HCMP 5226.  Mr Wan is correct on this.

19.  Regarding the absence of any reference to any indebtedness to Belgium Bank in the credit reports of the debtors, Mr Wan said that the loan which resulted in the judgment debt was advanced by Belgium Bank to the company Sino Cosmetics and not the debtors.  Therefore, the debt did not feature in the reports of the debtors.  Furthermore, Belgium Bank had not obtained the debtors’ consent to pass the record of their liability to the outstanding debt to the data bank.

20.  Mr Wan also explained that the omission of reference to HCMP 5226 in the schedule of legal proceedings used in ICBC’s application to take over the assets of Belgium Bank was because of oversight of Belgium Bank.

21.  Mr Wan also disagreed that Belgium Bank and ICBC had not taken any action to seek payment from the debtors.  He said Belgium Bank had hired a debt collector to chase the debtors for payment but without success.

The debtors’ further reply

22.  Mr Li made a further affirmation to reply to the points raised by Mr Wan.  He said after Belgium Bank had obtained the writ of possession dated 10 April 1999 to recover their properties, he and his wife applied for legal aid on 20 October 1999.  But their applications were refused by the Legal Aid Department.  They then discussed with Belgium Bank on how to settle the debt.  After discussion, they reached an agreement with Belgium Bank to surrender the properties to the bank for its disposal.  The market value of the properties was at HK$16,000,000 and was enough to set off the debt.  He also disagreed that Belgium Bank had recovered possession of the parking space at Excelsior Court.

23.  He also denied for himself and his wife of having received the demand letter dated 13 March 2000.  He also questioned why the letter merely asked for part-payment of HK$2,000,000 and not the whole of the alleged balance.  He doubted if the letter had indeed been issued as the fax heading showed that it had been faxed to Belgium Bank by its solicitors. 

24.  He accepted that ICBC could have the benefit of any judgment obtained by Belgium Bank, but reiterated that HCMP 5226 was not included in the schedule of legal proceedings as it had been settled.  He disagreed that the omission could have been due to oversight as Belgium Bank and ICBC would have checked carefully on what case had to continue and should be transferred to ICBC.  The matter was also attended to by professionals and staff of the banks.  The only conclusion from the omission is that the case had been settled.

25.  He also reiterated that the absence of any debt due from him and his wife to Belgium Bank in the credit reports could only lead to the conclusion that there was no such debt.

26.  He also denied that Belgium Bank or ICBC had by themselves or their debt collector sought repayment from them since 2000.

27.  In their oral submissions, Mr Li repeated his grounds of opposition in his two affirmations.  He referred to the alleged settlement agreement, but the only particular he added was that the discussion was with a manager or manager Wong of Belgium Bank.

28.  Madam Foo stressed in oral submissions that the application by ICBC to take over the assets of Belgium Bank was made by many professionals.  They could not have omitted HCMP 5226 by oversight.  The omission must be because of the settlement of these proceedings between them and Belgium Bank.

Analyses and Decisions

29.  The debtors do not dispute the judgment debt.  They rely on an alleged settlement agreement, but have provided no particulars as to when, where, how and with whom the agreement was made.  Mr Li only added in the oral submissions that the agreement was made with a manager or manager Wong of Belgium Bank. 

30.  They however rely on three pieces of circumstantial evidence to support the existence of the alleged agreement.  They referred to the absence of any reference to any debt due from them to Belgium Bank in their credit reports supplied by the consumer credit data bank.  They also referred to the omission of HCMP 5226 from the schedule of legal proceedings that were taken over by ICBC from Belgium Bank.  They also referred to the absence of any attempt to obtain payment from them by Belgium Bank since 2000 and by ICBC since the takeover of assets order dated 29 November 2005. 

31.  They also said that they had pursuant to the settlement agreement returned the properties to Belgium Bank to set off the judgment debt and that the market value of the properties at HK$16,000,000 (or at HK$20,000,000 as submitted by Mr Li in oral submissions) was enough to pay off the debt.  The bank did not get full payment after selling the properties only because the price of the properties had gone down after they had been returned to Belgium Bank.

32.  If there was indeed the settlement agreement, I wonder why the debtors should have provided no particulars of the circumstances of how, with whom and where it was made.  I would also expect the agreement to be made or at least evidenced in writing.  I do not think Belgium Bank would have contented to settle the judgment debt simply by an oral agreement.  I expect the bank would want the agreement to be reduced in writing and endorsed by the signatures of all parties concerned. 

33.  I also do not see any need on the part of Belgium Bank to settle the judgment debt with the debtors by taking the properties and no more.  Under the judgment, the bank was already entitled to recover possession of the properties from the debtors.  There did not appear to be any reason for the bank to forgo its right to claim from the debtors payment for any possible shortfall in return for the possession of the very properties that it was already entitled to possess.  The bank had already obtained a writ of possession for the properties.  It was the duty of the Bailiff to take possession of the properties and deliver them to the bank. 

34.  Furthermore, even if the market value was enough to satisfy the judgment, it was still unnecessary for the bank to enter into the alleged agreement.  The reason being that the actual sale may produce proceeds less than the market value and the alleged agreement would prevent the bank from recovering the shortfall, if any, from the debtors.  Therefore, there did not appear to be any reason or advantage for the bank to have settled with the debtors in terms of the alleged settlement agreement.

35.  I also do not accept that the parking space at Excelsior Court was returned by the debtors to Belgium Bank.  The exchange of letters between the solicitors for the bank and the solicitors for the tenant show that the parking space was returned by the tenant to the bank.

36.  Regarding the absence of any reference in the credit reports to any debt due from the debtors to Belgium Bank, the debtors have only made assertions against the explanations given by Mr Wan.  They have provided nothing solid to rebut the explanation that the loan was advanced to a company and not to the debtors and hence no data of the loan as against the debtors was given to the data bank. 

37.  The only two matters remaining are the omission of HCMP 5226 from the schedule of legal proceedings and the lack of action by the banks to seek repayment from them since 2000.  But these two matters are mere circumstantial evidence and are insufficient to outweigh the absence of any documentary proof of and the lack of any reason for Belgium Bank to enter into the alleged settlement agreement. I also hold that the properties were not returned by the debtors to Belgium Bank but recovered by the bank.  I therefore hold on a balance of probability that the debtors have failed to prove the existence of their alleged settlement agreement.

38.  On the question of limitation, section 4(4) of the Limitation Ordinance provides:

“(4) An action shall not be brought upon any judgment after the expiration of 12 years from the date on which the judgment became enforceable, and no arrears of interest in respect of any judgment debt shall be recovered after the expiration of 6 years from the date on which the interest became due.”

39.  The debtors rely on this section as the judgment was granted on 12 February 1999 which was more than 12 years before 22 September 2011 when the petitions for bankruptcy were filed.  They in effect say that the petitions are “actions upon the judgment” given on 12 February 1999 and are barred by limitation.

40.  Mr Cheung, counsel for ICBC, referred me to Ridgeway Motors (Isleworth) Ltd v ALTS Ltd [2005] EWCA Civ 92, which is a decision of the English Court of Appeal on the meaning of “an action upon a judgment” in section 24(1) of the Limitation Act 1980.  Our section 4(4) is the same as section 24(1) of the English Act except that the limitation period in section 24(1) is six years and the limitation on accrual of interest is in section 24(2).

41.  Mummery LJ said in para 29 of the judgment:

“Conclusion

29.    I agree with Ridgeway’s submissions to the extent that (a) a winding-up petition is, in a general sense, a ‘proceeding in a court of law’ and that (b) it is not proper to characterise it as the individual execution of a judgment obtained by a creditor of the company.  This is not, however, sufficient to meet the difficulty that in Lowsley[1] it was unanimously held by the House of Lords that the expression ‘an action upon a judgment’ in s 24(1) has a special legal meaning derived from its legislative history.  ‘An action upon a judgment’ has been treated since Lamb[2] by the courts, by the Law Reform Committee and by Parliament itself as having the special or technical meaning of a ‘fresh action’ brought upon a judgment in order to obtain a second judgment, which can be executed.  Insolvency proceedings, whether personal or corporate, do not fall within the scope of the special meaning of ‘an action upon a judgment’.  A winding-up petition is neither (a) an action upon a judgment in the special sense of being designed to re-establish by legal proceedings the liability of the company to pay a judgment debt and obtain another judgment for it, nor (b) a process of execution of the judgment on which the petition is based.  It is sui generis, being in the nature of a wider legal proceeding available for the collective enforcement of the admitted or proved debts of the company for the benefit of the general body of creditors on a pari passu basis: see, for example, Re Lines Bros Ltd [1983] Ch 1, [1982] 2 All ER 183 at 20.  Whatever its correct juristic classification may be, a winding up petition is not, according to authorities binding on this court, ‘an action upon a judgment’ within s 24(1) and is not statute-barred.”

42.  I agree with the reasoning of Mummery LJ.  I hold that the same reasoning applies to a bankruptcy petition.  I therefore conclude that a bankruptcy petition is not an action upon a judgment.  The debtors therefore cannot rely on the law of limitation as an answer to the petitions.

Order

43.  Though ICBC has included excessive interest in the statutory demands and the petitions, the undisputable fact is that the debtors still owe ICBC more than HK$8,000,000 as the outstanding principal of the judgment as at 15 August 2001 was HK$8,785,390.44.  There was no further payment or set off since then.  I therefore make bankruptcy orders against both debtors.  I also make a cost order nisi that the debtors do pay ICBC the costs of the two petitions together with all costs reserved with the amount to be taxed if not agreed.