TO CHUN WA AND ANOTHER v. GOLDSORT CO LTD AND OTHERS

HCMP 563/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 563 OF 2011

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BETWEEN

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D E C I S I O N

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1.  I have to deal with the Defendants’ application to make absolute the charging order nisi made by Master Levy on 16 January 2012 over a property owned by the 1^st Plaintiff at Flat C, 3rd Floor, Oak Mansion, Harbour View Gardens, 20 Taikoo Wan Road, Taikoo Shing, Hong Kong (hereinafter referred to as “the Taikoo Shing property”).

2.  The charging order nisi was made on the basis of a judgment debt which arose out of a costs order made by Chung J upon dismissing the Plaintiffs’ claims in this action against the Defendants.  Such costs were summarily assessed in lieu of taxation by an order dated 14 October 2011 in the sum of HK$358,470.  As I understand, up to now, the Plaintiffs have made no payment, not even partial, towards the settlement of the said judgment debt.

3.  On the face of it, the Defendants are entitled to enforce such order by means as available under the rules, including seeking a charging order on properties owned by the 1^st Plaintiff. The burden lies upon the Plaintiffs, being the judgment debtors, to show cause why the court should not make such order absolute.

4.  The parties appeared before a Master on 10 February 2012. Before then, the Plaintiffs’ solicitors made an affirmation opposing the making of the order absolute.  The main ground put forward by the Plaintiffs’ solicitors is a purported setoff, whereby the Plaintiffs claim entitlement over certain rental income received by the 1^st Defendant over a property owned by the 1^st Defendant in Wanchai.

5.  As I understand, the Plaintiffs are shareholders of the 1^st Defendant. They claim entitlement under an agreement that they should be entitled to certain beneficial interest over the rental income.  During an EGM held early this year, the Plaintiffs were told by the 1^st Defendant that a sum of $184,300, being rental income received in respect of the Wanchai property owned by the 1^st Defendant, had been paid in partial settlement of the legal fees incurred by the Defendants in defending the action.

6.  For unknown reasons, the Plaintiffs claim entitlement over that sum of money, so that they are now seeking setoff against the judgment debt.  Such argument is devoid of any legal merits at all.  It is made clearly without any legal basis and foundation, in breach of the recognisable principle of company law and provisions under the Companies Ordinance. 

7.  As shareholders, Counsel for the Plaintiffs accepted that they can only obtain returns of their capital contributions by way of a declaration of dividends; otherwise they cannot lay hands over the income or properties owned in the name of the company.  That is what is usually known and called as the principle “separate legal entity”.  Not to say a director has no right on such property, no shareholder can claim such a right unless there is a certain declaration of trust arrangement.  Even so, they may have to obtain approval by the Board of Directors. 

8.  Nothing has been shown to prove any of these arrangements.  No evidence had been adduced by the Plaintiffs to show that the company has made any declaration of dividend.  I see no basis for the Plaintiffs to come near to make any claims over such rental income, no matter under whatever arrangements that the shareholders had made previously between themselves over the capital contribution when the company was formed or incorporated.

9.  The Plaintiffs and the Defendants may want to make use of the 1^st Defendant as their corporate vehicle to carry out some of their business venture.  However, that is not a basis for the Plaintiffs to make a proprietary claim over the rental income received by the company.  I see no basis at all, either legal or equitable, for the Plaintiffs to make such an alleged claim of setoff here. 

10.  There is no legal authorities put forward by the Plaintiffs to demonstrate that a judgment debt can be set off by way of an unascertained claim.  As I understand, the law only permits a judgment debtor to claim any setoff against a judgment debt by putting forward that they have paid partially the judgment debt, or put up sufficient securities to secure the payment of the judgment debt. 

11.  Other than that, I do not see any legal authorities put forward by the Plaintiffs to show to the court that the Plaintiffs could make such a setoff against a judgment debt. 

12.  I see no issues at all in this case that the court should consider adjourning this application for further consideration by way of a trial of issues.  The purported issues raised by the Plaintiffs are non-issues at all.  It would not prevent a court to consider giving an order absolute in favour of the Defendants today.

13.  Lastly, the Plaintiffs’ counsel raised an argument, which was not put forward in his written submission, as to the substantial value of the Taikoo Shing property.  Lately only yesterday, they want to adduce a further Affirmation of their solicitors by making an internet search as to the current value of the property. 

14.  They should recognise that this last and late attempt to adduce evidence, in breach of the order made on 10 February 2012, is a futile exercise.  Under the said order, any application for leave to file further evidence must be made 14 days before the substantive hearing. 

15.  No such application was made until yesterday.  The only explanation given was the Plaintiffs’ frequent travel out of Hong Kong.  I do not see that provides a good ground at all in light of the current technologies that you can contact your client to obtain instructions.  There is no evidence to show that the Plaintiffs are residing somewhere with no means of contact.

16.  Furthermore, by just making reference to an internet search over the value of the property would not assist the court in this matter when the court did not know whether the property is tenanted, occupied or encumbered in any way. 

17.  The Plaintiffs’ counsel referred me to the Hong Kong case of Chan Miu Cheung v Prague Enterprises Limited, HCA 2200/1985, whereby the court referred to the English case of Robinson v Bailey [1942] 1 Ch 268 to establish a principle that it is not a proper exercise of discretion to make a charging order on an asset of considerable and substantial value in respect of a relatively small debt payable by the debtor.

18.  Firstly, values of the property may be one of the considerations.  In the Chan Miu Cheung case, obviously, there are other properties and other charging orders that the judgment creditors can obtain over the judgment debt and it is questionable whether it is necessary to make absolute all the charging orders in respect of all the properties, or whether there will be sufficient security over the judgment debt by only imposing a charging order on one, or more than one, property.

19.  Furthermore, I do not know on what basis and rationale Robinson v Bailey was decided.  We know quite well that Hong Kong land laws are different from the English land laws.  As I understand in this case, the 1^st Plaintiff holds the Taikoo Shing property as joint tenant with another person.  If the judgment debt would not be satisfied and the property may be put on an order for sale, these factors of course will be relevant for the court to consider to make, or not make, any order for sale.

20.  But at this stage, as I can see, this is the only property of the Plaintiffs available for the Defendants to enforce the judgment debt.  No payment was made by the Plaintiffs in settlement of the judgment debt since October last year up to now.  No proposal was put forward by the Plaintiff as to how they would pay the judgment debt, except an allegation of setoff.  I do not see why I should exercise discretion in favour of the Plaintiffs.

21.  The Taikoo Shing property is now known, by way of evidence, the only property available for the purpose of enforcement of the judgment debt.  If I denied the Defendants to make absolute this charging order, it would mean a denial of justice, whereby the Defendants may have to spend other efforts to see how they can get the judgment enforced effectively against the Plaintiffs.

22.  Unfortunately, the Plaintiffs made no attempt at all to see how they would wish to settle the judgment debt.  Even though if what they said was correct as to the claims on setoff, there would still be a remaining balance of more than $200,000 that the Plaintiffs had to make and pay under the order of Chung J.  Nothing had been put forward by the Plaintiffs.

23.  I think the court can infer that the Plaintiffs have no intention, at least up to now, to settle the judgment debt as soon as possible.  The Plaintiffs have no sympathy of this court.  They tried their best to delay this process by putting forward a claim without any legal merits.  I think, in future, this kind of case should be able to be disposed of summarily, by way of a short hearing, without the need of dragging on for five months to have a hearing of three hours. 

24.  That is the whole purpose why I see fit in this case to exercise my proactive case management power under Orders 1A and 1B of the Rules of the High Court to bring forward the matter so that the court can dispose of the matter without further delay.  Justice must be seen to be done in this kind of situation.  The court should not condone any delay, especially in the enforcement process.  We usually see that if enforcement process is delayed, it would delay justice and the judgment creditors may eventually go without any payment.

25.  One last thing I want to bring notice to both parties is that it seems parties, including their legal representatives, nowadays have forgotten a longstanding practice on charging orders, which practice has been prevailing long before I started my legal practice more than 20 years ago.  In fact, that practice has been stated in the English White Book a long time ago.  That is paragraph 50/9A/37 of the Hong Kong Civil Procedure 2012.  It said:

“On the further consideration of the matter, the court must either make absolute the order nisi, with or without modifications, or discharge it, or direct an issue is to be tried on whether the judgment debtor in fact holds any beneficial interest in the property sought to be charged. A charging order nisi ought not to be left in a state of uncertainty or ambiguity. It must either be made absolute or discharged unless there is a real issue to be tried as to the ownership of the beneficial interest in the property sought to be charged. If the court is minded for good reasons to adjourn the further consideration of the matter, it should not adjourn the matter generally to a date to be fixed but it should adjourn the matter to a fixed time and place as in case of the original order nisi.”

26.  I think, obviously, for this case, this practice was ignored. The matter has been adjourned generally to a date to be fixed.  It has been fixed more than five months later, for a 3-hour hearing, on arguing something which does not touch upon the beneficial ownership of the property in question. 

27.  The court will usually adjourn to consider whether there should be a trial of issue.  The Plaintiffs raised nothing in this case which may touch upon the so-called beneficial ownership of the Taikoo Shing property (being the charged property).  Instead, they raised something relating to the Wanchai property owned by the 1^st Defendant (unrelated to the charging order).

28.  I hope, in future, the practice mentioned in the said paragraph of the Hong Kong Civil Procedure will be followed by the legal practitioners, and they should remind the court to follow such practice also.  Instead of adjourning the matter generally to a date to be fixed, the application should be adjourned to a fixed date and place.  I think there is good legal and policy reasons why such practice should be observed.

29.  In conclusion, I would make an order that the charging order be made absolute for the judgment debt still owed by the Plaintiffs to the Defendants. 

30.  I would assess the costs, gross sum, as with the usual practice for making a charging order absolute.