LEUNG CHI TUNG v. AU YEUNG FAN AND OTHERS

HCCW 504/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 504 OF 2005

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REASONS  FOR  DECISION

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1.  This is an appeal from the Decision of Master A. Ho dated 11 January 2013 dismissing the first respondent’s application to set aside the order made by Master A. Ho dated 16 August 2012 for the examination of the first respondent under Order 49B upon his failure to complete the sale and purchase of the petitioner’s shares in accordance with the order made by Harris J on 18 July 2012. The short point of law that arises in this appeal is whether a buyout order which has not been complied with constitutes a "judgment debt" for the purposes of Order 49B of the Rules of the High Court. At the conclusion of the hearing, the appeal was dismissed with costs. My reasons appear below.

Background facts

2.  The matter arises in this way. The petitioner obtained an order dated 30 May 2007 (and amended on 22 September 2009) after trial in proceedings brought under section 168A and 177 (1) (f) of the Companies Ordinance that the first and second respondents purchase the shares held by him in the company. Pursuant to the buyout order a valuation was made but that process took an inordinate length of time.

3.  On 30 September 2011, Harris J ordered that the value of the Petitioner’s shares as between the petitioner and the first respondent be fixed at RMB 18,888,761.84 and allowed the amount of approximately HK$6.3 million held by the solicitors then acting for the petitioner as stakeholder to be released to the petitioner in part satisfaction of that sum.

4.  On 18 July 2012 Harris J ordered that completion of the sale and purchase of the petitioner's shares with the first respondent take place at the head office of the petitioner's solicitors firm on or before 8 August 2012 ("the completion date"). The order required that at completion the first respondent give a cashier order/solicitors cheque drawn in favour of the petitioner in the sum of RMB 13,769,802.59 and the petitioner to execute and deliver all documents for the purpose of effecting the transfer of the petitioner's shares to the first respondent. The order further provided that should the first respondent fail to complete the sale and purchase on the completion date, the first respondent shall pay interest on the balance of the value of the petitioner's shares at judgment rate from the completion date until full payment.

5.  Completion did not take place on the completion date. That appears from the letter dated the 11 August 2012 from the petitioner’s solicitors to the first respondent's solicitors stating that the first respondent failed and/or refused to complete as required by the order.

6.  Upon the petitioner's ex parte application, Master Ho made an order on 16 August 2012 that the first respondent attend and be orally examined pursuant to RHC Order 49B as to whether any and what debts are due to him and whether the first respondent has any and what other property or means of satisfying the order.

Judgment debt

7.  Mr Bell SC who appeared for the first respondent submitted that the order did not create any judgment debt. Nothing was due and payable on the making of the order. Unlike an ordinary money judgment, it did not create an immediate obligation to pay. At best, it created a future debt, an obligation that could arise in the future i.e. on 8 August 2012. It was contingent on the petitioner being able to comply with his obligations in the future. He submitted that Order 49B does not apply because in the circumstances of this case there was no judgment debt.

8.  Mr Bell further refined his submission and submitted that if a judgment is not a judgment debt at the time it is made because it depends on a contingency, then the subsequent acts of the parties cannot convert it into a judgment debt. Mr Bell is effectively saying that a judgment debt must be such at inception, that is to say, created and brought into existence at the time of judgment was pronounced.

9.  Mr Bell placed considerable reliance on a passage in the judgment of Lindley LJ in Webb v Stenton and others, Garnishees (1883) 11 QBD 518 where the court had to consider whether, on the true construction of Order XlV, r. 2 under the English rules, there was a debt due and owing to the debtor which could be attached. It was in that context that Lindley LJ stated that:

"a debt is a sum of money which is now payable or will become payable in the future by reason of the present obligation, debitum in presenti, solvendum in futuro. An accruing debt, therefore, is a debt not yet actually payable, but a debt which is represented by an existing obligation."

10.  I accept that to be a correct statement of a "debt" but I do not see how it assists Mr Bell.

11.  For Order 49B to apply, there must be "a judgment for the payment of a specified sum of money that is, wholly or partly, unsatisfied ...". So, the question that has to be considered is whether in the present case there is such a judgment.

12.  Mr Keith Lam, counsel for the petitioner, submitted that a buyout order with a fixed purchase price and date of payment satisfies that condition. In essence the buyout order made in the present case involves (1) the purchaser paying the purchase price to the seller on the completion date, and (2) the seller transferring his shares in the company to the purchaser.

13.  Mr Lam referred to Duke of Beaufort v Phillips (1847) 1 De G & Sm 321; 63 E R 1087, where the Vice Chancellor took the view that a purchaser in default under the decree for specific performance is a judgment debtor. In that case, after a decree of specific performance had been made in favour of the plaintiff vendor under a contract for the sale of land and before the conveyance was settled the purchaser died. Sir J L Knight Bruce VC considered that the decree made was:

"substantially an order to pay a definite sum and a final adjudication. It must be placed on the footing of the judgment, and the Plaintiff must rank as a creditor accordingly for what should remain due after the proceeds of the estate were exhausted, for principal and interest".

14.  Mr Bell submitted that the Duke of Beaufort case was unhelpful because it was decided many years ago and the reasoning is 'sparse'. I note, in passing, that it was decided only 40 years earlier than Webb v Stenton. In any event, a buyout order is similar in nature to a decree for specific performance. In substance, there is no discernible difference. In my view, both the Beaufort case and Webb v Stenton provide support that on the facts of the present case there is a judgment debt which satisfies Order 49B.

15.  In my view, the order had the effect of creating binding obligations as from the making of the order on both the petitioner and the first respondent to be performed on the completion date. The obligations came into being when the order was made although performance was not due until 18 August 2012 and was not contingent on the other party performing his obligations. Non‑performance by a party of his obligations would constitute a breach of that party's obligations but would not relieve the other party from having to perform his own obligations. If, for example, the petitioner were to refuse to carry out his obligations, he would be in breach of the terms of the order but it would not relieve the first respondent from having to make the payment ordered by the court. It is for that reason that I consider that the effect of the order was to create a present obligation on the part of the first respondent to make payment on the date specified. That obligation was not contingent on any event and payment had to be made on the completion date.

16.  It should be mentioned that although it was said in Mr Bell's skeleton submissions that there was a complete absence of evidence that the petitioner was ready, willing and able to transfer the shares and to comply with this other obligations on completion, at the outset of the hearing, Mr Bell retracted that submission and accepted that there is evidence that the petitioner was ready, able and willing to comply with its obligations.

17.  In any event, the point about the absence of evidence showing the petitioner's willingness to perform his obligations is misconceived. It is irrelevant to the question whether or not there is a judgment debt for the purposes of Order 49B. Further, the point is bad not only because it was not a matter that was raised in the first respondent's affirmation but also because there is not a shred of evidence to support it.

Discretion

18.  It should be mentioned that in the course of his submissions, Mr Bell raised a new point which is that the first respondent should not have resorted to Order 49B which he noted was described as a "draconian order" in the editorial introduction to that order. Rather, it was suggested that an application should have been made under Order 48 for oral examination.

19.  While there are certain differences between Orders 48 and 49B, they share a common purpose which is to find out whether the debtor has any means of satisfying the liability under the judgment order of the payment, whether wholly or partially: see the Court of Appeal's decision in Poon Ting Chau v Wong Kwok Chi, unreported, CACV 65/2007, February 19, 2009. There is no hierarchy among the orders as to which should be used first. I do not consider that there is any substance in the point sought to be made by Mr Bell.