HUADA TOYS IMP. & EXP. TRADING CO., LTD AND ANOTHER v. MOUNT KELLY FOUNDATION LTD

HCA 1670/2020

[2021] HKCFI 2392

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1670 OF 2020

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REASONS FOR DECISION

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INTRODUCTION

1.  Before the Court was an appeal by the defendant herein (“D”) against a decision of Master Phoebe Man (‘Master”) on 15 April 2021 refusing to allow D to pay the judgment sums by instalments.

2.  On 28 September 2020, the plaintiffs (respectively “P1” and “P2” and collectively “Ps”) issued the writ herein with an indorsed statement of claim with each of Ps claiming a sum of HKD 5,625,000 or Ps claiming an aggregate sum of HKD11,250,000 from D, or alternatively damages to be assessed.

3.  On 27 January 2021, D filed an admission in Form 16 under Order 13A of RHC (later amended on 4 March 2021) (“Form 16”) admitting the whole amount claimed under the statement of claim and requested for time to pay under Order 13A rule 9 of RHC, that was to pay the total amount by 15 monthly instalments of HKD 750,000 each starting from 1 March 2021.

4.  On 5 March 2021, Ps requested for judgment and indicated that they did not accept D’s proposal for extension of time for payment.

5.  On 9 March 2021, the Master directed there be a 30 minute hearing fixed to determine the times and rate of payment, and directed the parties to lodge and serve their respective submissions, if any, at least 7 days before the hearing.

6.  On 15 April 2021, after hearing the parties, the Master ordered that judgment be entered for Ps against D and that D to pay Ps respectively the sum of HKD 5,625,000 (collectively “Judgment Sum”) with interests and costs were summarily assessed at HKD 50,000 to be paid to Ps forthwith.  On 29 April 2021, D lodged a notice of appeal to judge in chambers seeking to pay the Judgment Sum by 15 monthly instalments of HKD 375,000 each to each of Ps, or an aggregate of HKD750,000 monthly for 15 Months commencing on 1 May 2021 (“Notice of Appeal”).

7.  The hearing for the Notice of Appeal was fixed on 13 July 2021 and a notice of the hearing was sent to D’s solicitors on 27 May 2021.

8.  Thereafter, D’s solicitors then found themselves unable to continue acting for D and had applied to cease to act on 6 July 2021, and a letter was sent to inform this Court of the same on 8 July 2021. However, on 9 July 2021, D’s solicitors found themselves in a position to act for D again.  As a result, D’s submissions for the appeal were lodged late.

9.  On 12 July 2021, one day before the hearing, D’s solicitors suddenly filed a summons for leave to D to file and serve an affirmation by Mr Wong Pak Yin with various exhibits (“Leave Summons”). At the hearing before this Court, there was no objection to Mr Wong’s affirmation to be considered de bene esse.

10.  Counsel Mr Justin Ismail appeared for D and Counsel Mr Martin Ho appeared for Ps at the hearing.

11.  After hearing submissions from Counsel, this Court dismissed the Leave Summons and the Notice of Appeal.  The reasons are set out hereinafter.

Brief Background 

12.  D is a company limited by guarantee incorporated under the laws of Hong Kong.  D (or its group) operates Mount Kelly School Hong Kong (“School”), an international school offering a British international education in Hong Kong.

13.  Ps are companies limited by shares and incorporated under laws of Hong Kong.  P1 is the corporate vehicle of parents of a student studying at the School and P2 is the corporate vehicle of that student’s cousin and both Ps have subscribed for “development notes” issued by D, each in the sum of HKD 5,000,000 with interest payable of 12.5% and maturity date of 12 months from date of issuance (“Development Note”).

14.  Notwithstanding Ps signing the purchase contracts respectively for a Development Note and each paying HKD 5,000,000 to D, neither of Ps was ever provided with the Development Note. On 12 August 2019, approximately 12 months from the date of their respective purchase contracts, Ps indicated to D that they wanted to redeem their respective Development Notes.  On 27 August 2019, Ps received an email from the School/D acknowledging receipt of Ps’ respective redemption application.  There has been no repayment by D since.  This eventually led to Ps issuing the writ herein on 28 September 2020.

The law

15.  Order 13A rule 9 and rule 10 of our Rules of High Court (RHC) provide as follows:

“9. Request for time to pay (O. 13A, r. 9)

(1) A defendant who makes an admission under rule 4, 5 or 7 may make a request for time to pay.

(2) A request for time to pay is a proposal about the date of payment or a proposal to pay by instalments at the times and rate specified in the request.

(3) The defendant’s request for time to pay must be filed with his admission.

(4) If the plaintiff accepts the defendant’s request for time to pay, he may obtain judgment by filing in the Registry a request for judgment in Form No. 16A, 16B or 16E (as the case may be) in Appendix A.

(5) Upon receipt of the request for judgment, the Court shall enter judgment.

(6) Judgment shall be—

(a) where rule 4 applies, for the amount of the claim (less any payments made) and costs;

(b) where rule 5 applies, for the amount admitted (less any payments made) and costs; or

(c) where rule 7 applies, for the amount offered by the defendant (less any payments made) and costs,and (in all cases) shall be for payment by the date or at the times and rate specified in the defendant’s request for time to pay.

(7) Where judgment is for payment by instalments at the times and rate specified in the defendant’s request for time to pay, then unless the Court otherwise orders and subject to paragraph (8), execution of the judgment is stayed pending payment.

(8) If the defendant fails to pay an instalment or part of an instalment in accordance with the judgment, the stay of execution pursuant to paragraph (7) immediately ceases and the plaintiff may enforce the payment of the whole amount adjudged to be paid or the whole of any unpaid balance.

10. Determination of rate of payment by Court (O. 13A, r. 10)

(1)  This rule applies where the defendant makes a request for time to pay under rule 9.

(2)  If the plaintiff does not accept the defendant’s proposal for payment, he shall file in the Registry a notice in Form No. 16A, 16B or 16E (as the case may be) in Appendix A.

(3)  When the Court receives the plaintiff’s notice, it shall enter judgment for the amount admitted (less any payments made) to be paid by the date or at the times and rate of payment determined by the Court.

(4)  Where the Court is to determine the date or the times and rate of payment, it—

(a)  may do so without a hearing; but

(b)  shall consider—

(i)   the information set out in the defendant’s admission filed in the Registry;

(ii)  the reasons why the plaintiff does not accept the defendant’s proposal for payment; and

(iii) all other relevant matters.

(5)  If there is to be a hearing to determine the date or the times and rate of payment, the Court shall give each party at least 7 days’ notice of the hearing.”

16.  The above provisions were introduced under our Civil Justice Reform and are similar to Rules 14.9 and 14.10 of the Civil Procedure Rules (CPR) in England & Wales.

17.  As pointed out by Field J in Gulf International Bank v Al lttefag Steel Products Co [2010] EWHC 2601 (QB), CPR 14.9 and 14.10 are not the only provisions in the CPR that confer a power on the court to postpone payment of sums in respect of which the creditor is entitled judgment and that CPR 40.11 also provides the court with such power and further there also exists power to give time to pay as part of the execution process by which judgments are enforced, see eg RSC Rule 47.1[1].

18.  So far as Hong Kong is concerned, apart from Order 13A rules 9 and 10 of RHC set out earlier, there are also provisions which confer a power on the court as part of the execution process by which judgements are enforced, under Order 45 rule 11, Order 47 rule 1 and there is also inherent jurisdiction in suitable cases to make order staying execution[2].

19.  In the case of Gulf International Bank case, the defendants had admitted the plaintiff’s two claims and had requested for extension of time to paid under CPR 14.9 and 14.10.  Field J pointed out as follows:-

“When exercising the discretion under CPR 14.10, this court is bound to have regard to the interests of the relevant parties. These will inevitably include the interest of the judgment creditor whose claim will be vindicated by a judgment and the interests of the judgment debtor who invariably would be a business entity, usually a corporation. The court will also bear in mind that, where enforcement of the judgment can take place within the jurisdiction, the judgment creditor will be free to choose from the available methods of enforcement including a petition to secure the bankruptcy or the winding‑up of the debtor as the case may be, as to which there is a statutory right providing that the preconditions of the making of such an order are met.”

20.  Further, Field J was of the opinion that Akenhead J’s observation in Amsalem (t/a MRE Building Constractors) v Raivid & Ravid [2008] EWHC (TCC) 3226 that inability to pay would usually not justify a pre-execution extension of time, with an insolvent debtor having to take the usual consequences of his or its insolvency, would apply a fortiori where the parties were business entities[3]. 

21.  Thus, Field J took the view that in the ordinary way, the court would only exceptionally extend time under CPR 14.10 and 40.11 and then only where the judgment debtor was solvent and for relatively short periods of time and after which the whole judgment debt would become payable, and further that in reaching its decision, the court would give careful consideration as to whether some provision in respect of interest ought to be made in light of the fact that the judgment debtor would be kept out of his money for the period of the extension[4].

22.  In Hong Kong, in her judgment in Panjabi v Cader [2011] 4 HKLRD 355, Master Levy followed and applied what was held by Field J in the Gulf International Bank case.  She held that the court had absolute discretion whether or not to extend time to pay an admitted judgment sum which involved balancing the interests of the creditor against the debtor's financial situation.  Having found that there was nothing exceptional to warrant an extension of time, she refused to allow the application by the defendant in that case to extend time for payment.

23.  Mr Ismail on the other hand has drawn this Court ‘s attention to a recent English Court of Appeal’s decision Loson v Stack [2018] EWCA Civ 803 which Mr Ismail submits has “cast doubt” on the continued correctness of the Gulf International Bank case, and thus Panjabi v Cader.

24.  The plaintiff’s application in Loson v Stack was for a variation of two costs orders under CPR 40.9A (which only applies to actions in the County Courts in England) so as to allow her to pay the total amount of £8,000 by monthly instalments of £50 each.  She obtained such an order, but on appeal by the defendant (judgment creditors), the order was set aside.  On further appeal by the plaintiff to the Court of Appeal, Lord Justice Patten had referred to both the Amsalem v Raivid case and the Gulf International Bank case in relation to an instalment order made whether under CPR 40.11 or by way of variation under CPR 40.9A , and said:

“But I do accept that for the debtor to obtain the benefit of an instalment order, whether originally under CPR 40.11 or by way of variation under CPR 40.9A, the Court must be presented with a realistic repayment schedule backed up by evidence that the creditor can be expected to receive the amount of principal and any interest within a reasonable period of time. To that extent, the interests of the creditor will be paramount. Quite where the balance should be struck in terms of reasonable time will depend on the facts of each case. I accept that in a purely commercial context (such as the situation in Gulf International Bank) there may be less room for allowing time for payment particularly, where the creditor has its own cash flow requirements to consider. Equally there will be other cases where a limited period of time will enable the debt to be paid in full without any significant prejudice to the creditor particularly where interest is payable in the meantime…..”[5].

(emphasis added)

25.  I do not think Lord Justice Patten can be said to have “cast doubt” on the decision in Gulf International Bank which was in a commercial context and in any event, Lord Justice Patten has stated that there must be a realistic repayment schedule backed up by evidence from the debtor.  Even though the subject application in Loson v Stack was a variation application under CPR 40.9A, I see no reason as to why the comments made by Lord Justice Patten above should not apply equally to an application for extension of time to pay the judgment sum under our Order 13A rule 9 RHC.

The Leave Summons

26.  It was Mr Ismail’s submission that there is a Practice Direction 14 in place in England for applications for extension of time to pay.  In contrast, there is no practice direction in Hong Kong.  There is no mechanism under O.13A, r.9 of RHC that allows a defendant to file evidence in support of its request for time to pay.    

27.  It is thus submitted by Mr Ismail that the consequence is that if (as was the case here) a plaintiff does not accept a proposed repayment schedule and the matter is brought before a master, except for information concerning the defendant’s assets and liabilities (Items 11-13) and the “brief reasons” provided (Item 14) in the Form 16, a defendant has no other opportunity to adduce evidence which it can rely upon to justify its request.

28.  Mr Ismail submitted that was the very position D found itself in prior to the hearing before the Master.  Although the Master had ordered the parties to lodge submissions, she then proceeded to dismiss D’s request for time to pay on the basis of inter alia a lack of supporting evidence.

29.  Hence, as submitted by Mr Ismail, D was prejudiced both procedurally and substantively: (1) there was no order for the filing of evidence, (2) the Director’s Report and Audited Financial Statements provided only a snapshot of D’s financial health (as at 31 March 2019) and (3) the reasons given to sustain the request were restricted to “brief reasons” only, and that evidence could not and was not given from the Bar table.

30.  This Court has pointed out at the hearing, item 6 in the “Explanatory Note” in Form 16 states as follows:

“6. If the plaintiff does not accept your proposal for payment, the Court will decide how the payment should be made after considering –

(a) the information set out in this form;

(b) the reasons why the plaintiff does not accept your proposal for payment; and

(c)  all other relevant matters.”

(emphasis added)

31.  Further, under the instructions on “How to fill in this form” of Form 16, it is clearly stated that if one is not an individual, one should complete items 10 to 12 of Form 16 and ensure that one complies with the requirement specified in item 13 and provide sufficient details about the assets and liabilities of one’s firm, company or corporation to support any offer of payment made in item 14. (emphasis added)

32.  In light of the above explanatory note and instructions to fill in the form, and further what was said by Lord Justice Patten in Loson v Stack, the burden was clearly on D to provide the Master with sufficient details of its finances and all relevant matters to support its proposal for payment.  Form 16 is in the form of a declaration. Although there are no rules providing for filing of any affidavit evidence under Order 13 A rule 9, if after making the declaration by way of Form 16, there is any new evidence or new development prior to the hearing before the master, there is no reason why a defendant cannot seek leave to file further evidence.

33.  After the Civil Justice Reform, Order 58 rule 1(5) of RHC provides that no further evidence, other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made, may be received on the hearing of an appeal under Order 58, except on special grounds.  As set out in paragraph 58/1/3 of the HKCP, the phrase “special grounds” is the same expression as in Order 59 rule 10(2) and requires the conditions laid down in Ladd v Marshall to be satisfied.

34.  Essentially, Mr Wong sought to exhibit in his new affirmation (i) projected income statement of the School; (ii) projected detailed profit and loss account statement of the year ended July 2021; (iii) a printout of a powerpoint slide showing the data of student admissions as of 18 June 2021.  There was also a letter purported to be signed by about 50 existing students and/or parents of the School to the Education Bureau dated 18 June 2021 showing their support for the continuation of the School and also a newspaper article of 7 July 2021 reporting the School’s intentions to continue operations in Hong Kong as well as Mr Wong’s intention to invest in the Mount Kelly School (HK) Ltd from August 2021.

35.  There was no explanation by Mr Wong to why the evidence of (i), (ii) and (iii) could not have been prepared or obtained with reasonable diligence at least up to March/April 2021 for use at the hearing before the Master.  Further, there was no supporting documents to those projected statements of figures.  I am of the view that the Ladd and Marshall conditions were not satisfied and there are no special grounds to allow the Leave Summons.  As indicated at the hearing, this Court will however consider Mr Wong’s new affirmation and its exhibits de bene esse.

The Notice of Appeal

36.  An appeal from a master to the judge in chambers is dealt with by way of an actual rehearing of the application which led to the order under appeal.

37.  At the hearing, this Court was informed by Mr Ho that there has already been a winding up petition presented by one of the creditors against D which was due to be heard by the Companies Judge in a day or two after the hearing before this Court and that creditor was also a purchaser of a Development note.  There has been no disclosure at all by Mr Wong or D of any winding up petition.  Mr Ismail informed this Court that he had no knowledge of it as he was not instructed in those winding up proceedings.  There was however no denial form Mr Wong or D at the hearing that a winding up petition had been ben presented by one of D’s creditors.  

38.  In Form 16, D stated under item 11 that its assets were HKD 72,696,558 consisting of bank balances and cash of HKD 1,057,058 and its loans and receivables were HKD 71,639,500.  Under item 12, D stated that its liabilities were HKD 73,932,768.  Under item 14, D stated that following the recent social unrest and current Covid-19 pandemic, the schools operated by D were forced to suspend classes for extended periods of time and experienced a large number of student withdrawals.  According to D, these had had a very serious impact on D’s finances as a result of which it had to rely on loans from its founders and directors in order to repay its creditors.  

39.  D had sought leave to file an amended Form 16 in March 2021, and yet the only supporting documents he produced in the amended Form 16 were D’s audited financial statements for year ending 31 March 2019, which was some 2 years out of date.  As said earlier, in Mr Wong’s new affirmation, he had produced a projected income statement from 1 August 2021 to 31 July 2022, and a profit and loss account statement “for the year ended 31 July” which appeared to be for 2021/22 and 2022/23.  None of these were audited financial statements.  It was not clear who prepared those projected statements.  As said earlier, there were no supporting documents to those projected figures, such as bank statements or any evidence as to how those projected figures were arrived at.  In fact, there was nothing in those statements which would support D’s ability to pay HKD 750,000 per month as from 1 May 2021 as stated in D’s Notice of Appeal.

40.  Under the purchase contracts signed with Ps, D was supposed to repay Ps in full by August 2019.  Then in his Form 16, D had proposed monthly instalments of HKD 750,000 commencing from 1 March 2021. In his Notice of Appeal, he had proposed to pay from 1 May 2021.  Up until the hearing before this Court in July 2021, nothing had been paid by D.

41.  Those documents produced by D in Mr Wong’s latest affirmation in fact appears to show that D is insolvent.  Mr Ismail argued that D “balance-sheet insolvency” was immaterial, as its financial position was set to improve and that Mr Wong, the founder and the financial controller of D has publicly announced his intention to act also as an investor and to advance a substantial loan to the School to ameliorate is financial position and to keep the school in operation.  However, there was no amount of the loan indicated, not had any part of this loan been advanced.

42.  Mr Ismail further argued that if Ps were to take immediate enforcement action against D, eg by invoking the insolvency regime, the consequences and prejudice suffered would be dire not just by D but the wider youth community as well and disrupting D’s students’ education.  However, as mentioned earlier, the “insolvency regime” has already been invoked by another creditor.  Mr Ismail also argued that Ps would also lose the security of having the judgment sum recovered within the next 15 months.  I agree with Ps that there was no such security and there was no realistic proposal for repayment from D. 

43.  Ps should not be deprived further of the sums due to them which they had been kept out of for almost 2 years.

44.  Having balanced the interests of Ps’ and of D’s, I was not prepared to allow D’s request for extension of time to pay the judgment sum, interests and costs.

Conclusion

45.  For the above reasons, I dismissed D’s Notice of Appeal and the Leave Summons.  Costs should follow the event and be borne by D.

46.  Ps have submitted a statement of their costs, of HKD 69,800.  D has submitted a list of objection.  The costs ordered are only on party and party basis.  The hearing before this Court was about 52 minutes.  Ps’ Skeleton Submissions were only about 6 pages and D’s about 10 pages.  Mr Ho also appeared before the hearing before the Master.  The matter is not complicated and I summarily assess a total sum of HKD 45,000 for Ps’ costs and disbursements.