GLORY LINK INVESTMENTS LTD v. YOUNG PUI YORK

HCA 1240/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1240 of 2009

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D E C I S I O N

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THE APPLICATION

1.  This is the plaintiff (“the Judgment Creditor”)’s application for an imprisonment order against Mr Young Pui York (“the Judgment Debtor”) under Order 49B rule 1B(1)(a) and (b) of the Rules of the High Court.  The issue herein is whether the condition(s) for making an imprisonment order under the said rule 1B is/are satisfied.

THE LAW

2.  Before I set out the other undisputed general principles applicable to this application, I should deal with a point raised by Mr Cheung and Mr Yuen on behalf of the Judgment Debtor as to the interpretation of Order 49B rule 1B(1) of the Rules of the High Court.

3.  This rule provides that:

“Where the Court is satisfied, following the examination conducted under rule 1A or following an examination conducted under Order 48, that the judgment debtor: -

(a) is able to satisfy the judgment, wholly or partly; or

(b) has disposed of assets with a view to avoiding satisfaction of the judgment or the liability which is the subject of the judgment, wholly or partly; or

(c) has wilfully failed to make a full disclosure as required under rule 1A(2) or at the examination under Order 48 or to answer any question as provided under that rule or Order,

it may, in its discretion, order the imprisonment of the judgment debtor for a period not exceeding 3 months.”

4.  It was submitted that rule 1B(1)(a) on its own does not trigger the potential liability for imprisonment and that the word “or” at the end of sub‑paragraph (a) should read as “and”, because, it was said, if sub‑paragraph (a) is to be read as a stand‑alone provision, each and every judgment debtor is, without having done anything impeachable, potentially liable to be imprisoned.

5.  With respect, I do not accept this argument.

6.  First of all, I am bound by the following judgments of the Court of Appeal and the Court of First Instance.

7.  In Ferryhill International Ltd v Mahmoud Aziz [1997] HKLRD 482, a judgment cited by Mr Cheung and Mr Yuen themselves, the judgment creditor relied on both rule 1B(1)(a) and rule 1B(1)(c) in support of its application for an imprisonment order which was granted by a Master.  On appeal by the judgment debtor to the Court of Appeal, Nazareth VP, having ruled that the finding that the judgment debtor was able to satisfy the judgment wholly could not be supported on the evidence, went on to say:

“But that does not dispose of the appeal, for the second finding, ie that the judgment debtor wilfully failed to make full disclosure as required by r.1A(2), if proper, could sustain the sentence of imprisonment under r.1B(1)(c) which is alternative to r.1B(1)(a)…” (emphasis added) (at page 486I)

8.  The position cannot be made clearer by the use of the word “alternative”. Indeed, if the submission made by Mr Cheung is correct, the Court of Appeal did not have to go on and consider the second finding made by the Master, namely, whether the judgment debtor failed to make full disclosure.

9.  Mr Cheung, in his submission, then clarified that while sub‑paragraphs (a) and (b) should be looked at together (and should both be satisfied if an order for imprisonment is to be made), sub‑paragraph (c) is an independent provision and its operation does not hinge upon the satisfaction of either sub‑paragraph (a) or (b).  I cannot accept this argument either, as this also goes against the use of the word “alternative” in the quoted judgment of the Court of Appeal above.

10.  This position has also been made clear in Citibank NA v Chow Tat Sang & Others (HCA 9175/1983, unreported, 1 February 1984), in which Mayo J (as he then was), after referring to the said Rule 1B, had this to say:

“…Undoubtedly the rule imposes upon a judgment debtor a duty. This is a duty which must be discharged. It does not, however, take matters further than this. The application for the examination is taken out by the judgment creditor and it is still incumbent upon him to establish that the judgment debtor has been failing in his duties. This view appears to be borne out by the drafting of rule 1B. The Court must be satisfied of one or more of the matters referred in sub‑paragraphs (a), (b), (c) of rule 1B(i) (sic).” (emphasis added) (at page 6)

11.  Even if I am not bound by the above judgments (as suggested by Mr Cheung – because, he submitted, the point was not specifically raised and argued in the above cases), I would have come to the same conclusion.  In my view, it is incorrect for the Judgment Debtor to assert that “each and every judgment debtor is, without having done anything impeachable, potentially liable to be imprisoned if sub‑paragraph (a) is a stand-alone provision”.  It should not be forgotten that the court is only given power to imprison a judgment debtor pursuant to rule 1B following an examination conducted under Order 48 or Order 49B rule 1A and that such an examination would not be allowed unless the judgment debtor has failed to satisfy a judgment in the first place.  It is apparently the legislative intent to treat a judgment debtor’s conduct of not satisfying a court judgment despite his ability to do so as contempt of court. I cannot see anything wrong with this.  The meaning of the said rule 1B(1) is clear and unambiguous.  Hence, there is no reason why the word “or” at sub‑paragraph (a) should be read as “and”.

12.  I will now refer to the general principles.

13.  Parties have cited a number of authorities on general principles applicable to this application including Gua Chiao Commercial Bank Ltd v Alpha Plus International Development Ltd (HCA 14714/1999, unreported, 24 February 2001), Ontone Finance Company Ltd v Leung Siu Kee & Others (HCA 408/2011, unreported, 30 April 2015), Secretary For Justice v Siegfried Lee Siu Fung & Others (HCMP 2851/2004, unreported, 23 October 2006), Ferryhill International Ltd v Mahmoud Aziz [1997] HKLRD 482 and Timekeeping Systems Inc v Stephen John Oberlander & Another (HCA 612/2007, unreported, 7 August 2009). Such principles (which are applicable to rule 1B(1)(a) and rule 1B(1)(b) which are the relevant provisions herein) may be summarised as follows:

(a)  The jurisdiction of the court to imprison a judgment debtor should be exercised with care and circumspection.  The court must be satisfied beyond reasonable doubt that one or more of the grounds set out in Order 49B, rule 1B(1) is established before making an imprisonment order, as the jurisdiction is analogous to proceedings for contempt which have long been recognised as criminal in nature and must be proved to the criminal standard of proof.

(b)  The court must be extremely careful not to imprison a debtor simply because he has no means to satisfy the judgment debt.

(c)  For rule 1B(1)(a) to be satisfied, it must be proved that the judgment debtor is able to satisfy the judgment wholly or partly.  The operative word is “is”.  The means to pay must relate to existing assets that are instantly or currently available to the judgment debtor.

(d)  The judgment debtor’s intention to avoid satisfying the judgment can be proved by way of inferences.  However, as the criminal standard is applicable, the court may only draw an inference if: (i) it is grounded on clear findings of primary fact: (ii) it is a logical consequence of those facts; and (iii) it is the only inference that can reasonably be drawn on the basis of those facts.

(e)  Good grounds for suspicion are not enough to support a finding that the judgment debtor is able to satisfy the judgment.

(f)  As far as rule 1B(1)(b) is concerned, the judgment creditor has to show that the judgment debtor has disposed of his own assets (as opposed to the assets of others), and that such disposal was made with a view to avoiding satisfaction of the judgment debt.

THE GROUNDS IN SUPPORT

Overview

14.  The Judgment Creditor relies on two bases in support of the present application:

(a)  The Judgment Debtor has disposed of approximately HK$3 million sale proceeds arising from the sale of his shareholding in a number of private companies in April 2014 with a view to avoiding satisfaction of the judgment debt which is in the total sum of around HK$34.9 million.

(b)  The Judgment Debtor is able to satisfy the judgment debt partially as he has 50% beneficial ownership in a property (“the City Garden Property”).

15.  Despite the fact that the examination of the Judgment Debtor has taken place on three separate occasions, the parts of transcript which the Judgment Creditor seeks to rely on in this application are limited.  They have been helpfully identified by Mr Ho as follows:

(a)  For the Judgment Debtor’s disposal of the approximately HK$3 million — p.15C to p.17J and p.24A to p.28K of the bundle of transcripts.

(b)  For the Judgment Debtor’s ability to satisfy the judgment debt — p.67H to p.71Q of the bundle of transcripts.

16.  I shall consider the aforesaid grounds in turn below.

Disposal of assets

17.  The relevant undisputed facts are as follows:

(a)  The Judgment Debtor did sell his shareholdings in a number of private companies by virtue of certain agreements in writing all dated 15 April 2014 and as a result of which he has received a net sum of around HK$3 million.

(b)  Initially, the Judgment Debtor was minded to use the sale proceeds referred to above to fund his appeal against the Judgment of Seagroatt DHCJ herein.  However, he later changed his mind and abandoned his plan to appeal.

(c)  The Judgment Debtor then decided to invest the sale proceeds in a transportation company in Zhuhai in the hope that he could earn a living for himself and his mother.

18.  Relying on the approach adopted by Master Ko in Timekeeping Systems Inc (supra), Mr Ho submitted for the Judgment Creditor that since the Judgment Debtor was “conscious of the decision as to how he should deal with the money”, the court has sufficient basis to find beyond reasonable doubt that the Judgment Debtor intended to avoid satisfying the judgment by spending the money rather than applying the money towards the judgment debt.

19.  It is apparent that Mr Ho was only focusing on the money when he argued on this ground, and that is why he had laid emphasis on the approach adopted in Timekeeping Systems Inc (supra).

20.  In my view, in the circumstances of the present case, it is important to bear in mind that under Order 49B rule 1B(1)(b), the Judgment Creditor, apart from disposal of assets, is also required to prove that such disposal was made with a view to avoiding full or partial satisfaction of the judgment.  The mere proof of disposal of assets, without more, is not enough.

21.  Assuming the risk of stating the obvious, I should also add that if an asset has been disposed of, it would necessarily mean that that particular asset would not be available for the satisfaction of a judgment.

22.  If these matters are taken into account together, one would appreciate that even if a judgment debtor has made a conscious decision to dispose of his asset in a way other than paying the Judgment Creditor, it does not necessarily mean that the ground under Order 49B rule 1B(1)(b) is established.  Otherwise, it would be equivalent to ignoring the other important element of the ground, namely, that the Judgment Debtor did the act “with a view to avoiding satisfaction of judgment”.

23.  It is my judgment that the approach adopted in Timekeeping Systems Inc (supra) is inapplicable in the present case because the facts of these two cases are simply different.  In Timekeeping Systems Inc (supra), the judgment debtor not only made a deliberate decision not to pay his judgment creditor, he also chose to spend all his money on entertainment.  Once the money was spent, there was nothing that the judgment creditor could do as the money would be gone forever.  With the judgment debtor’s answers given in cross‑examination (as quoted in Master Ko’s Decision), there was enough material for the learned Master to conclude that the judgment debtor therein disposed of his asset (the cash) with a view to avoiding satisfaction of the judgment debt.

24.  The present case is totally different.  While it is true that the Judgment Debtor chose not to pay the Judgment Creditor, he did not spend the money as the judgment debtor in Timekeeping Systems Inc (supra) did, instead, he invested the money in a business (a transportation company in Zhuhai).  Although such an investment would make it less straight-forward for the Judgment Creditor to enforce the judgment when compared to the situation where the Judgment Debtor holds HK$3 million cash in a Hong Kong bank account, it cannot be said that such an investment would have the effect of avoiding the satisfaction of the judgment herein.

25.  It must also be borne in mind that there is no evidence that the Judgment Debtor was hiding his ownership in the transportation company or holding the same in another person’s name so that his ownership of which could not be traced.  Neither is there any evidence that the Judgment Creditor cannot enforce the judgment herein against the Judgment Debtor’s shareholdings thereof if it so wish.

26.  More importantly, there is no evidence that the Judgment Debtor thought before he decided to invest in the Zhuhai transportation company that once he did that, the Judgment Creditor would be unable to get its hand on his shareholdings in that company.

27.  Moreover, it is the unchallenged evidence of the Judgment Debtor that the purpose of this latest investment was to earn some money for his future living.  Thus it must be the Judgment Debtor’s view at the time that this investment would have a prospect of providing him with what he needed in the years to come.  In other words, he did not anticipate (at least subjectively) that he would lose the HK$3 million sale proceeds in this investment.

28.  Taking all these matters into consideration, in my judgment, the Judgment Creditor has failed to prove beyond reasonable doubt that the Judgment Debtor has made the investment with a view to avoiding satisfaction of the judgment.  I do not accept that I can draw an irresistible inference that the Judgment Debtor made the investment with a view to avoiding satisfaction of judgment as suggested by the Judgment Creditor.

Ability to satisfy judgment

29.  At the time of the examination, the Judgment Debtor acknowledged that he had 50% beneficial ownership in the City Garden Property.

30.  The Judgment Creditor contended that the Judgment Debtor was able to satisfy the judgment debt partially by selling this property.

31.  After the examination in November 2015, the Judgment Debtor had proceeded to sell this property on 30 March 2016 and received a net sum of HK$5,407,635 (“the Property Sale Proceeds”).

32.  On 29 April 2016, the Judgment Debtor suggested to the Judgment Creditor that he would pay HK$5,099,535 out of the Property Sale Proceeds to the Judgment Creditor in full and final settlement of the judgment debt.  The sum of HK$5,099,535 was arrived at by deducting HK$308,100 from the Property Sale Proceeds, and in turn, the sum of HK$308,100 represents the total legal costs incurred and to be incurred in these proceedings and in another related legal proceeding (HCA 1704/2015).  This suggestion was rejected by the Judgment Creditor.

33.  On 12 May 2016, the Judgment Debtor’s solicitors sent a cheque for the sum of HK$5,099,535 to the Judgment Creditor’s solicitors unconditionally in partial satisfaction of the judgment debt.  Apparently, the Judgment Debtor did proceed to withhold the sum of HK$308,100 for the purpose of payment of legal fees.  I have been informed by Mr Cheung that the said sum is now held in the Clients’ Account of the solicitors acting for the Judgment Debtor.

34.  Pausing here, it should be noted that at the hearing on 20 May 2016, Mr Cheung has conceded that the costs of HCA 1704/2015 should not be taken into account in this application. 

35.  In the light of the latest development, Mr Ho now confines his application on the said balance of HK$308,100.

36.  However, at the hearing on 20 May 2016, Mr Ho accepted that this court should take into account the legal costs which the Judgment Debtor has incurred in defending this application for an order of imprisonment as it is necessary and desirable for him to be represented in this hearing, given the very serious consequence.  Indeed, even Mr Ho himself had suggested in the hearing on 12 November 2015 that the application for an order of imprisonment should be adjourned so that the Judgment Debtor could consider whether he should seek legal representation.

37.  At the hearing on 20 May 2016, Mr Cheung has handed up a statement of costs in relation to the costs incurred by the Judgment Debtor in relation to the hearing for the application for imprisonment order.  The total amount of costs as shown therein is in the sum of HK$191,800.

38.  Mr Ho has not made any submission in relation to such a statement of costs in his reply submission.  Bearing in mind that this represents the Judgment Debtor’s own costs, and given that I have no reason not to accept that this statement of costs represents the actual costs incurred, I am of the view that I should give full weight to such legal costs payable by the Judgment Debtor to his solicitors for the application herein.

39.  Having deducted the legal costs of HK$191,800, there would be HK$116,300 left in the Clients’ Account of the Judgment Debtor’s solicitors.  As aforesaid, Mr Cheung has conceded in the hearing on 20 May 2016 that allowance should not be made for the legal costs incurred or to be incurred in HCA 1704/2015. The only remaining justification on the part of the Judgment Debtor to withhold the money is gone.

40.  As Mr Cheung has also conceded that the Judgment Debtor should be liable for the cost of the examination, I have considered whether I should take this matter into account when I consider whether I should make a payment order. Having heard the parties, I have decided not to. This is because at this stage, the exact amount of cost payable by the Judgment Debtor is still unknown.

41.  In my view, there is no reason why the Judgment Debtor should continue to withhold the balance of the Property Sale Proceeds in the sum of HK$116,300.  I therefore order pursuant to Order 49B rule 1B(2)(a) that the Judgment Debtor should pay the Judgment Creditor the said sum of HK$116,300 for satisfaction of the judgment herein partially within 14 days.

42.  While the judgment of Seagroatt DHCJ was handed down back in December 2013, the Judgment Creditor has not obtained any Charging Order against the City Garden Property. Although it is true that the Judgment Debtor has not sold the City Garden Property for satisfaction of the judgment for more than two years, it is also a fact that he has not disposed of this property and hid the sale proceeds.  More importantly, before the hearing on 20 May 2016, he has sold the City Garden Property and handed around 94% of his entitlement to the net sale proceeds to the Judgment Creditor unconditionally for satisfaction of the judgment. 

43.  In these circumstances, I do not consider it appropriate for this court to make any order of imprisonment against the Judgment Debtor.  Of course, in the event that he fails to comply with the order of payment which I have just made, the Judgment Creditor will be at liberty to make another application for an imprisonment order pursuant to Order 49B rule 1B(3)(a).

CONCLUSION

44.  For the reasons above, I will not make any imprisonment order against the Judgment Debtor.  However, pursuant to Order 49B rule 1B(2)(a) of the Rules of the High Court, he is ordered to pay the Judgment Creditor the sum of HK$116,300 in satisfaction of the judgment herein partially within 14 days.

Costs

45.  As aforesaid, Mr Cheung did not dispute that the Judgment Debtor should be liable to pay costs of the examination.  However, both parties asked for costs of the hearing held on 20 May 2016.  In my view, costs of this hearing should be awarded to the successful party.  But who is the successful party?

46.  In my judgment, the Judgment Creditor must be regarded as the successful party.  Although it has failed in its application for an imprisonment order as well as in its reliance on the ground under Order 49B rule 1B(1)(b), one must not lose sight of the fact that the Judgment Debtor has eventually sold the City Garden Property and handed over his entitlement to the sale proceeds to the Judgment Creditor in satisfaction of the judgment debt.  In my view, the Judgment Debtor would not have done so but for the application of the imprisonment order. Without this application, it is likely that the Judgment Debtor would still be holding onto the City Garden Property as his home.

47.  Further, as I have explained above, in deciding not to make an imprisonment order against the Judgment Debtor, I have taken into account the fact that he has now sold the City Garden Property and paid more than HK$5 million to the Judgment Creditor for satisfaction of the judgment debt.  Hence, I do not think it is fair to say that the Judgment Creditor has not been successful in this application by reason of the fact that no imprisonment order has been made against the Judgment Debtor.

48.  In addition to the sum of around HK$5 million received, the Judgment Creditor has also successfully obtained a payment order under Order 49B rule 1B(1)(b). Again, this order would not have been made but for the application for an imprisonment order.  Taking this order into account, the Judgment Creditor would be able to recover more than HK$5.2 million in total. 

49.  It should also be noted that the Judgment Debtor has only handed over the sum of around HK$5 million to the Judgment Creditor on 12 May 2016.  By then, the Judgment Creditor has already briefed counsel to attend the hearing, given this court’s previous direction that the Judgment Creditor’s written submission had to be lodged and served by 6 May 2016.  Hence, much of the costs for the imprisonment order had been incurred already by the time when the Judgment Debtor made the payment.

50.  I therefore order that the Judgment Creditor’s costs of the examination including those of the hearing for the application for an imprisonment order should be borne by the Judgment Debtor with certificate for counsel, to be taxed if not agreed.