NU LOOK IPI ENTERPRISES LTD v. CHAN SIU MUI and TAM LAN CHI LORCHE, the Administratrix of the estate of TAM KAM FAI FRANCIS, deceased

HCA 228/2019

[2021] HKCFI 588

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 228 OF 2019

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D E C I S I O N

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A. INTRODUCTION

1.  This is the Plaintiff (“P”)’s appeal against Master Sara Tong’s order dated 3 December 2020 whereby she struck out P’s claim on the ground that it was time barred.  The Defendant (“D”) is the administratrix of the estate of Tam Kam Fai Francis (“the Deceased”), who passed away on 17 December 2012.  The Deceased was a majority shareholder and director of P.  The 1^st named Defendant was the widow of the Deceased whereas the 2^nd named Defendant was his daughter.  After the Deceased’s death, it appears that P was under the control of Tam Kok Po Pearl (“Pearl Lam”), who was a director and shareholder thereof. Pearl Tam was another daughter of the Deceased; she and the 2^nd named Defendant are sisters.

2.  The only issue is whether a payment made on 11 December 2013 constituted a part payment under the Limitation Ordinance (Cap. 347) (“LO”) so that P’s claim commenced on 12 February 2019 was not time-barred.

B.      P’s CLAIM

3.  P claims against D for an outstanding loan of $6,593,198.55 being the sum it lent to its then director i.e. the Deceased as recorded and admitted in the Deceased’s confirmation to P’s auditor on 20 November 2012 and P’s audited report as at 17 December 2012.  The original loan was $6,793,198.55.  However, $200,000 was repaid on or about 11 December 2013 (“the Payment”) leaving a balance of $6,593,198.55.

4.  The Payment was made on or about 11 December 2013 by cheque (no. 374125) drawn by Yew Chung International School – Secondary (“Yew Chung”) dated 11 December 2013 (“the Cheque”), which was mailed to P’s office at Room 213, 2^nd Floor, Wing On Plaza, 62 Mody Road, Tsimshatsui East, Kowloon, Hong Kong.

C.      D’s DEFENCE

5.  The 1^st named Defendant is represented by solicitors whereas the 2^nd named Defendant is acting in person.  They filed separate defences.  For the present purpose, suffice to say that both of them pleaded that P’s claim (which is denied) is, in any event, time barred by the latest on 17 December 2018 i.e. the 6^th anniversary of the Deceased’s death pursuant to section 4 of the LO. The writ herein was, however, issued on 12 February 2019.

D.      THE 2^ND NAMED DEFENDANT’S STRIKING OUT APPLICATION

6.  On 13 July 2020, the 2^nd named Defendant took out an application to strike out P’s claim on the ground that it is an abuse of process of the court for the cause of action disclosed therein was time barred.  The 1^st named Defendant took a neutral stance, and her attendance at the substantive hearing of the striking out application before the Master was excused.

7.  Pearl Tam made an affirmation in opposition on 18 September 2020.  She referred to the witness statements filed by P.  Lau Po Chi, a staff member of P, stated in §15 of her statement dated 11 May 2020 that a sum of $200,000 was borrowed by the Deceased on 26 May 2011 to pay the debenture of Yew Chung, which had been repaid on 11 December 2013.  Pearl Tam gave the same evidence in §18 of her statement dated 2 April 2020.

8.  According to the documentary evidence, on 14 March 2011, Yew Chung issued an official receipt acknowledging receipt of $200,000 from P in payment of the debenture for year 2011/2012 for Tam Chi Tao Anson by a cheque (no. 006-258806) banked in on 10 March 2011.  There is a handwritten memorandum dated 14 April 2011 signed by the Deceased on behalf of P in which it was stated that the debenture was P’s property; and if Tam Chi Tao quitted or completed his study, Yew Chung shall return the whole sum of $200,000 to P.  According to P’s general ledgers, there was a drawing by the Deceased in the sum of $200,000 on 11 May 2011. There is also a copy of the Cheque in relation to the Payment.

9.  On 7 December 2020, Master Sara Tong struck out P’s statement of claim and dismissed P’s action with costs.

10.  On 18 December 2020, P filed a notice of appeal against the Master’s decision, which is the matter now before me.  It is trite that an appeal from a master to a judge in chambers is a hearing de novo.

E.      P’s APPLICATION TO ADDUCE NEW EVIDENCE

11.  On 24 February 2021, P took out a summons seeking leave to file Pearl Tam’s 2^nd affirmation dated the same.  In the affirmation, she stated that P never had any dealing with Yew Chung; in about February 2011, the Deceased needed to pay Yew Chung a bond in the sum of $200,000 for his son, Anson Tam; hence, the Deceased borrowed that sum from P which was duly recorded in the running account between the Deceased and P; and when the repayment was made, the repaid sum was credited to the Deceased’s running account to reduce his indebtedness.  P’s general ledgers described the payment of $200,000 as “refund debenture” on 18 December 2013.  The repayment was also reflected in P’s audited financial statement for the year ended 31 March 2014 under “amount due from former deceased shareholder”.  She stated that when Anson Tam completed his study at Yew Chung in or about 2013, D did not request repayment of the debenture to the Deceased’s estate and Yew Chung repaid it to P as instructed by the Deceased.  She repeated that the Payment by Yew Chung on 11 December 2013 was a repayment of the Deceased’s outstanding loan owed to P.  The following documents were exhibited to the affirmation: a copy of P’s general ledger activity report as at 31 March 2014 and a copy of P’s audited accounts for the year ended 31 March 2014.

12.  Pearl Tam stated that the additional documents had been put away for years and could not be retrieved when she prepared her previous affirmation in September 2020.  The operation of P’s office had been kept at the minimal and they worked from home because of the outbreak of Covid-19.  Moreover, her previous affirmation was prepared in a rush as it was the 2^nd named Defendant’s initial request to have the striking out application heard on the first day of the trial.

13.  The 2^nd named Defendant made an affirmation dated 1 March 2021 to oppose P’s summons.

14.  Under Order 58, rule 1(5), Rules of the High Court (Cap. 4) (“RHC”), 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 from a master to judge in chambers except on special grounds.  As explained in Hong Kong Civil Procedure 2021, vol. 1, §58/1/3 at pp 1181-1182, the phrase “special grounds” is the same expression in RHC, Order 59, rule 10(2) and requires the conditions laid down in Ladd v Marshall to be satisfied.  The conditions are: (a) that the evidence could not have been obtained with reasonable diligence for use at the hearing below; (b) the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it needs not be decisive; (c) the evidence must be such as is presumably to be believed i.e. it needs not be incontrovertible and it is sufficient that it is apparently credible.

15.  I am prepared to consider the new evidence on a de bene esse basis, and will decide on P’s summons later.

F.      ANALYSIS

16.  A striking out application should only be allowed in a plain and obvious case.  In the present context, the party against whom the issue of limitation is raised bears the burden of proving that the claim falls within the limitation period; and for the purpose of resisting a striking out application, the burden is discharged by showing that it is arguable that the claim falls within the limitation period, without actually proving on balance of probability that the claim indeed falls within the limitation period (Grant Pacific Equity Ltd v R.S.H. Sports (HK) Ltd and others, HCA4713/2003 (20 May 2008, unreported), §12).

17.  P confirmed that the only issue is whether it is arguable that the Payment constituted a part payment under s.23(3) of the LO so that the limitation period started to run afresh on 11 December 2013.  If not, P accepted that its claim would have been time barred.

18.  S.23(3) of the LO provides that:

“Where any right of action has accrued to recover any debt or other liquidated pecuniary claim, or any claim to the personal estate of a deceased person or to any share or interest therein, and the person liable or accountable therefor acknowledges the claim or makes any payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgement or the last payment…”

19.  In Re Footman Bower & Co Ltd [1961] Ch 443 at 449, Buckley J held that:

“Since the enactment of the Limitation Act, 1939, the position is different, for section 23(4) now contains a statutory provision applicable to simple contract debts whereby any payment in respect of a debt will make time start to run afresh in respect of that debt. There is no longer need to establish a new promise to pay. In my judgment, however, one must still look at the act and intention of the debtor to see whether the payment is made in respect of the particular debt. Payment is in this subsection dealt with in close conjunction with acknowledgment. Just as an acknowledgment can only acquire that character by the act of the debtor or his agent, so also, I think, a payment can for the purposes of the subsection only acquire the characteristic of being made “in respect of” the debt by the act of the debtor or his agent. Consequently, in my judgment, appropriation by a creditor of a sum received from the debtor towards satisfaction of a particular debt, be it statute-barred or not, cannot make such appropriation a “payment in respect thereof” within the meaning of section 23(4).” (emphasis added)

20.  As the part payment must be made “in respect of” the debt, it is necessary to identify the debt first. At p 450, Buckley J described the nature of a debt arising out of a current, or running, account as follows:

“In the case of a current account, where the debtor-creditor relationship of the parties is recorded in one entire account, into which all liabilities and payments are carried in order of date as a course of dealing extending over a considerable period, the true nature of the debtor’s liability is, in my judgment, a single and undivided debt for the amount of the balance due on the account for the time being, without regard to the several items which, as a matter of history, contribute to that balance."

21.  The significance of a debt being based on a current or running account in the present context was explained by Buckley J at p 451:

“When, as in the present case, there is an account running between the parties which to the knowledge of both parties is of that kind and kept in that way, then, if the debtor makes a payment “generally on account,” it appears to me that he must be taken to be making it on account generally of whatever is owing on the balance of the account. A payment “on account” imports an acknowledgment of a liability for a larger sum…When a payment is merely stated to be “on account” without the liability on account of which it is made being specified, one must first inquire what liabilities on the part of the payer to the recipient exist. If on inquiry it is found that the only liability is in respect of a balance due on current account, the natural conclusion to reach is, in my judgment, that the payment is made on account of that balance generally, not on account of any particular items contributing to that balance…The much more acceptable view seems to me to be that by making a payment generally on account the debtor makes it on account of the whole of his indebtedness, that is to say, on account of the balance outstanding and due at the date of payment.’

In Lee Kwok Wing v Chung Chuen Hei [2012] 4 HKLRD 917 at 948, §89, DHCJ Lisa Wong SC (as she then was) summarised the position as follows:

“Where payments are made in respect of a running account debt, the position is that the outstanding balance at any given time will be regarded as a single debt, in which case, regular payments into that account may be regarded as payments in respect of the amount then owed.”.

22.  It is important to appreciate that the rationale behind the principle in this respect is that a part payment constitutes an admission of the debt. As stated in Chitty on Contracts, 33^rd edn., vol. 1, §28-097 at p 2090:

“Part payment is merely a species of acknowledgment. All that need (and must) be shown is that the part payment constitutes an admission that the balance of the debt remains due…”

In Lee Kwok Wing v Chung Chuen Hei [2012] 4 HKLRD 917 at 947-948, §86, DHCJ Lisa Wong SC (as she then was) held that:

“Under s.23(3), a part payment of a debt is taken as an admission by a debtor that the balance of that debt remains due. Therefore, in determining whether a payment constitutes part payment of a debt for the purpose of s.23(3), one must look at the act of payment and the intention of the debtor to see whether the payment was made in respect of the debt in question.”

In Re Lau Wan [2013] 3 HKLRD 567 at 574, §28, A Chan Jheld that:

“…First, what underpins a part payment in terms of s.23(3) is the fact that it constitutes an admission of the debt in question

A part-payment, liked an acknowledgment, can only revive the cause of action and start time running afresh if it provides evidence in the form of an admission by the debtor that the debt remains due despite the passage of time.

See Surrendra Overseas Ltd v Government of Sri Lanka [1977] 1 WLR 565, 576F.”

23.  To constitute such an admission, the court must look at the act and intention of the debtor (Re Lau Wan [2013] 3 HKLRD 567 at 574, §29).  It is axiomatic that the part payment must be made by the debtor or his agent. As stated in Chitty on Contracts, 33^rd edn., vol. 1, §28-098 at p 2090:

“Section 29(5) of the Limitation Act 1980 requires that the payment must be made “in respect of” the claim. A payment cannot require this character by any act of the creditor but only by the act of the debtor or his agent.”

At §28-101, pp 2090-2091, the authors state further that:

“The acknowledgment or part payment may be made by the agent of the person liable and must be made to the person or to the agent of the person whose claim is being acknowledged, or in respect of whose claim the payment is being made. An acknowledgment or part payment made by a stranger who is not an agent of the debtor is of no effect. It is clear, however, that the agent need not be expressly authorised to make an acknowledgment: it is sufficient if the making of the acknowledgment is within his general authority.”

In Halsbury’s Laws of England (5^th edn., 2016), vol. 68, §1195 at p 377, the authors state that:

“Although payment by an agent has the same effect as payment by the principal, it is a question of fact whether the person making the payment was an agent for that purpose.”

24.  Applying these legal principles to the facts of this case, I have come to the conclusion that it is plain and obvious that the Payment was not an act on the part of the debtor i.e. the Deceased, or his agent, to make partial repayment in respect of his outstanding debt owed to P.  I shall explain why.

25.  For the present purpose, I am prepared to assume and accept that, first, there was a current/running account between P and the Deceased in relation to shareholder (or director)’s loans advanced by P to the Deceased from time to time; second, in this current/running account, a sum of $200,000 was advanced by P to the Deceased on or about 26 May 2011; and third, in fact, P paid the sum of $200,000 earlier on or about 10 March 2011 directly to Yew Chung.

26.  First and foremost, it is unarguable that Yew Chung made the Payment as an agent of the Deceased.  The Payment was made on 11 December 2013, which was almost a year after the Deceased died on 17 December 2012.  The Letters of Administration of the Deceased’s estate were only granted to D much later on 13 December 2016.  At the time of the Payment, no one had been properly authorised to represent the Deceased’s estate.  There is also no evidence that Yew Chung made the payment as an agent for whoever.

27.  P relies on Chinnery v Evans [1864] 11 ER 1274.  In that case, it was held that payment of interest on a mortgage made by a receiver appointed under an Irish statute was payment by an agent of the party liable. P relied on the following passage in the judgment at p 1284:

“But the payments in this case were not payments by a stranger; for though a receiver appointed under the Irish Statute 11 and 12 Geo.3, c. 10, is an officer of the Court, yet he is certainly no stranger to the mortgagor, but a person paying for him and on his account what he is bound to pay.”

This case was cited in Halsbury’s Laws of England (5^th edn., 2016), vol. 68, §1195 at p 377 to support the following proposition:

“A receiver of mortgaged property appointed under the Law of Property Act 1925 is the mortgagor’s agent, and a payment by that receiver of the net rents of the property takes the mortgage debt out of the effect of the limitation period…”

It is clear that this precedent cannot assist P as Yew Chung cannot be equated to a receiver appointed under a statute.

28.  Further, although the exact terms of the debenture issued by Yew Chung are unclear, the debenture was, by nature, a loan agreement.  As confirmed by the receipt issued by Yew Chung dated 14 March 2011 and the Deceased’s internal memo dated 14 April 2011, P was the owner, or holder, of the debenture.  In other words, P was the creditor of Yew Chung under the debenture.  It is clear that the Payment was made by Yew Chung to repay the debt, and to discharge its contractual obligation, that it owed to P under the debenture.  It is unreal and unsupported by any evidence to contend that Yew Chung made the Payment “generally on account” to discharge partially the Deceased’s liabilities under the current/running account with P.  There is no evidence that Yew Chung was aware of the fact that the sum of $200,000 it received from P was treated as a director/shareholder’s loan advanced by P to the Deceased, or generally the existence of the current/running account of the Deceased kept at P.  It is irrelevant that P elected to use the Payment to discharge partially the Deceased’s indebtedness.  In short, the Payment is plainly not a payment made “in respect of” the then outstanding debt owed by the Deceased to P.

29.  For these reasons, it is plain and obvious that P’s case that the Payment constituted a part payment under s.23(3) of the LO must fail.  As mentioned, P accepted that, if that be the case, P’s action would have been time-barred. It follows that the Master was correct to strike out P’s claim.

30.  It should also be clear from what I said above that it would not have made any difference even if P’s new evidence were to be admitted.   In this sense, P’s summons to adduce the new evidence is academic.  Nevertheless, I shall dismiss the summons for the following reasons.  First, I am not satisfied that the new evidence could not have been obtained with reasonable diligence for use before the Master. Pearl Tam’s first affirmation was made on 21 September 2020.  The hearing date before the Master (i.e. 7 December 2020) was fixed on 6 November 2020.  There was ample time for P to adduce supplemental evidence before the hearing if it so wished.  P had not explained what efforts it had made to try to retrieve the additional documents before the Master’s hearing, and how and when exactly it managed to retrieve them.  The fact that P’s officers worked from home due to Covid-19 could not have stopped them from conducting all necessary investigations.  Second, for reasons that I need not repeat, I am not satisfied that the additional documents and the new evidence given by Pearl Tam would have any important influence on the result of the case.

G.      CONCLUSION AND ORDER

31.  For these reasons, I conclude that the Master was correct to strike out P’s claim on the ground that it was time-barred.  Accordingly, P’s appeal is dismissed with costs to the 2^nd named Defendant to be taxed if not agreed.

32.  The 1^st named Defendant’s solicitor attended this appeal hearing on the ground that P had served the notice of appeal and the summons on her.  However, the 1^st named Defendant has adopted and maintained a neutral stance.  Her attendance was unnecessary; and she could have sought permission to be excused from attendance as what happened before the Master. In the circumstances, I will not make any order as to the 1^st named Defendant’s costs of this appeal.