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Limitation on Enforcement of Judgment Debts in Hong Kong
1 March 2014

Pursuant to section 4(4) of the Limitation Ordinance (Chapter 347) (“the Ordinance”), there is a time limit of 12 years for creditors to bring an action on a judgment debt from the date on which the judgment became enforceable. After expiration of the 12 years, no such action can be taken.

Furthermore, in cases where a writ of execution (e.g. a writ of fieri facias, a writ of possession, a writ of delivery, a writ of sequestration) is required to enforce a judgment, such writ may not be issued without the leave of the Court when 6 years or more have elapsed since the date of the judgment. It would be in the discretion of the Court whether leave should be granted to enforce the judgment after 6 years.

Interpretation of the word “action” in section 4(4) of the Ordinance

In two recent Hong Kong cases, the meaning of the word “action” in section 4(4) of the Ordinance was extensively discussed. If it has a restrictive meaning like in England i.e. “action” means a new set of proceedings brought for the purpose of re-establishing the judgment debt to obtain a second judgment, then the limitation period would not apply to other execution proceedings e.g. bankruptcy or winding up. If it has a wide meaning, then “action” would cover all kinds of legal proceedings (including any form of enforcement or execution proceedings, bankruptcy and winding up proceedings) based on a judgment debt and none of these proceedings can be brought after the 12 years limitation period.

The Court of Appeal in Re Li Man Hoo (A Debtor) confirms that the meaning of the word “action” in section 4(4) above is the wide one. It refused to follow the restrictive meaning applied in England. In that case, bankruptcy petitions were presented in September 2011 based on a judgment debt obtained in February 1999 (i.e. the bankruptcy petitions were presented more than 12 years after the date of the judgment). The debtors opposed the petitions on the ground that each of the bankruptcy petitions was an “action” brought upon a judgment and by virtue of section 4(4), the petitions were time-barred.

The Court of Appeal overturned the lower court’s decision and held that the word “action” in section 4(4) of the Ordinance would include “any proceeding in a court of law” and encompasses bankruptcy petitions. Hence, the bankruptcy proceedings based upon the judgment debt which was entered more than 12 years prior to the presentation of the petitions were time-barred under the Ordinance.

Section 4(4) of the Ordinance would also apply to winding up proceedings. In Re Man Po International Holdings Ltd where the petitioner petitioned for the winding up of a company in January 2012 based on a judgment obtained in July 1998, enforcement of the judgment was held to be time-barred after 12 years under the Ordinance.

Impact on interest caused by undue delay

Judgment creditors should also note that no arrears of interest in respect of a judgment debt may be recovered after the expiration of 6 years from the date on which the interest became due, according to section 4(4) of the Ordinance.

Where a plaintiff delays in taking enforcement legal action on interest without any good explanation, the court may exercise its discretion to deprive the plaintiff of pre-judgment statutory interest on a debt or damages (under section 48 of the High Court Ordinance or section 49 of the District Court Ordinance).

Further, the court also has the discretion to deprive the plaintiff of pre-judgment contractual interest during the period of delay even if the plaintiff is entitled to pre-judgment contractual interest. The matter was considered in Bank of China (Hong Kong) Ltd v China International Business Investigation Co Ltd. In that case, the Court was of the view that there was nothing to tie the Court’s hands in depriving a plaintiff’s relief for contractual interest if it was just and equitable to do so as a result of the plaintiff’s conduct (e.g. a long period of delay).

The Court in that case decided to adopt a “notional” date of judgment (i.e. 7 November 2002), the date on which final judgment could have been obtained by the plaintiff had the plaintiff pursued the matter with reasonable diligence, and deprived the plaintiff of the contractual interests from the “notional” date of judgment. The Court also exercised its discretion under section 48 of the High Court Ordinance in denying the plaintiff statutory interest during the period of delay (i.e. from the “notional” date of judgment up to the “actual” date of judgment).

Conclusion

In view of the above cases, creditors should not only be aware of the 12 years limitation period under section 4(4) of the Ordinance but also that the court has the discretion to refuse to award contractual interest and statutory interest to the judgment creditor if it finds that there has been undue delay by the creditor to proceed with the legal action. Arrears of interest in respect of a judgment debt may also not be recoverable after 6 years. It is therefore important that enforcement action on a judgment debt be taken with reasonable diligence and no undue delay.

If you have any queries regarding the above eNews or cases, experienced lawyers in our Litigation Practice will be happy to assist you.

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