Legal update: Presenting winding-up/bankruptcy petitions based on foreign judgment debts – Is registration required?29Mar2021
Can a foreign order or judgment be immediately enforced in Hong Kong? Generally, the answer is no. Depending on where the judgment comes from, either it must first pass registration under the Foreign Judgments (Reciprocal Enforcement) Ordinance, or if not caught by that ordinance, there is also a common law regime for other judgments. In Re James Chor Cheung Wong in 2018 this general rule was extended to bankruptcy proceedings, so that a foreign judgment must first be registered before it can be used as a basis of a statutory demand. However, is this judgment consistent with the established legal principles and authorities?
In Re James Chor Cheung Wong, the petitioner presented a bankruptcy petition against the debtor following his failure to comply with a statutory demand based on two costs orders made by the Supreme Cout of Queensland. The debtor disputed liability on a technical ground, namely that the foreign costs orders could not form the basis of the petitioning debt without first being enforced or recognised in Hong Kong.
The issue identified in the judgment was the scope of the term “proceedings” in the Reciprocal Enforcement Ordinance, which provides “No proceedings for the recovery of a sum payable under a foreign judgment, being a judgment to which the provisions of this Ordinance apply, other than proceedings by way of registration of the judgment, shall be entertained in any court in [Hong Kong]”. If bankruptcy proceedings fall within the definition of “proceedings” under the Ordinance, then bankruptcy petitions based on foreign judgment debts should not be launched unless they have already been registered in Hong Kong. The Court went to some length to interpret the meaning of “proceedings” and relied principally on the English judgment Re A Judgment Debtor in 1939. This case discussed the England & Wales equivalent. However, it was a very different case, and the creditor issued a bankruptcy notice after having already registered the foreign judgment. To counter the argument that bankruptcy proceedings cannot be brought on the basis of a foreign judgment at all, “proceedings” was interpreted broadly to include bankruptcy proceedings so that the creditors could be allowed to present bankruptcy petitions based on the registered foreign judgments. Whether a foreign judgment is required to have local registration for presenting bankruptcy petitions was not at issue.
Re James Chor Cheung Wong appears to overlook a critical issue, namely whether the Ordinance has any application to bankruptcy petitions at all. If presenting a bankruptcy petition is not considered enforcement then arguably the Ordinance would not apply at all. In other words, did the Court focus too heavily on the word “proceedings”, rather than looking at the whole sentence and context in which the word is present, i.e. “proceedings for the recovery of a sum payable under a foreign judgment”? Are insolvency proceedings an action for recovery of money? Perhaps not.
Bankruptcy and winding-up petition based on debts arising from arbitral award
Similar to the enforcement of a foreign judgment, under section 84 of the Arbitration Ordinance, an arbitral award (whether made in or outside of Hong Kong) is not immediately enforceable in the same manner as a judgment of the Hong Kong Court. The award first requires recognition by obtaining leave from the Court.
The same issue as in Re James Chor Cheung Wong, save in the context of an arbitral award, was considered by the Court in Re Lucky Resources (HK) Ltd in 2017. In this case the company opposed a winding up petition on the ground that the petition had been improperly presented, because the petitioner had not made an application for leave to enforce the award. The Court rejected the company’s argument and reasoned that the presentation of a petition to wind up a company on the grounds of insolvency is the exercise of a class right and does not constitute enforcement of either a judgment or an arbitration award. A winding up order was made. Notwithstanding that Re Lucky Resources (HK) Ltd is a case involving arbitral award, presenting a winding up or bankruptcy petition on the ground of a foreign judgment is very similar to presenting a winding up or bankruptcy petition on the basis of an arbitral award.
The proposition that presentation of winding up or bankruptcy petitions is not a form of enforcement was also confirmed in Re The Grande Holdings Ltd. In this case, a creditor had obtained from the Superior Court of California a judgment against a company which was subject to a winding up petition in Hong Kong. The creditor presented an amended winding up petition based on the California judgment and applied for substitution as a winding-up petitioner. The amended petition was opposed on the basis that the judgment made by the California Court fell foul of section 7 of the Protection of Trading Interests Ordinance, the consequence of this being the foreign judgment will not be able to be enforced in Hong Kong either under the statutory registration regime or the common law regime.
However, it was decided that section 7 only applies to attempts to enforce foreign judgments. As winding up proceedings are not enforcement proceedings, the section would not apply to prevent a creditor from presenting a petition based on a foreign judgment. It was also noted that a creditor who presents a petition based on debts arising from a foreign judgment is different from a creditor who brings an action to enforce a foreign judgment. In winding up proceedings, the creditor is merely exercising a class right in a representative capacity. Although in some general, loose, sense, a creditor petitioner might be said to be enforcing his judgment, the creditor in such a situation is in no better position than any other creditor. In winding up or bankruptcy proceedings, the petitioner is no longer seeking to recover for itself alone, if anything it is for all the creditors. In contrast, a creditor who enforces a judgment debt by commencing actions seeks to place itself in a better position.
The judgment of Re James Chor Cheung Wong made no reference to Re Lucky Resources (HK) Ltd or Re The Grande Holdings Ltd which both pre-date it. In Re James Chor Cheung Wong, whilst the Court focused on the scope of the “proceedings” in which foreign judgments would first need to be registered, the issue of whether bankruptcy petitions falls within the scope of enforcement proceedings at all was not identified or discussed. It is certainly arguable that the pre-conditions to enforce a foreign judgment have no application in circumstances where foreign judgment debts are relied on as a ground to present a winding up/bankruptcy petition.
Ian De Witt
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Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.