VALLET MAURICE HENRI ROLAND v. PHOENIX TELECOMMUNICATION LTD

DCMP 3403/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 3403 OF 2003

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BY ORIGINAL PROCEEDINGS

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BY THE DIRECTIONS GIVEN BY THE COURT OF APPEAL DATED 27 JANUARY 2006

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J U D G M E N T

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1. There are 4 summonses before me involving Antares LLC (“Antares”) and Dragon Investment Company II LLC (“Dragon”):

(i) Dragon's application for payment of its appeal costs out of the security for costs provided (“the 1^st summons”) ;

(ii) Antares' application for an adjournment of the 1^st summons pending directions from the Court of Appeal (“the 2^nd summons”);

(iii) Antares' application for a stay of the payment out stated in the 1^st summons and for Dragon to pay a sum of $650,000 being sum owed to Phoenix Telecommunication Limited (“Phoenix”) under a costs order (“3^rd summons”);

(iv) Dragon's application for the Charging Order nisi to be made absolute against the balance of the security for costs paid into court by Antares.

Background

2.  Mr. Vallat Maurice Henri Roland (“Mr. Vallat”) was formerly an employee and a director of Phoenix and he instituted proceedings in the Labour Tribunal against the latter for arrears of salary.  On 17 August 2003, Mr. Vallat obtained judgment against Phoenix for $592,131.65 with interests and costs.

3.  Phoenix was owed money by Dragon.  In February 2002, Phoenix commenced High Court proceedings, HCMP No. 514 of 2002 to prevent Dragon which was in fact a minority shareholder from presenting a winding up petition against it.  Phoenix won and got its costs.  Madam Justice Yuen on 2 September 2002 ordered Dragon to pay Phoenix the costs of the action.  By an Allocatur dated 2 October 2003, those costs were allowed at a total of $646,243.67 (“the Debt”).

4.  On 11 October 2003, Mr. Vallat commenced the original proceedings in this case for a garnishee order (“garnishee proceedings”).  Antares was granted leave to join as an intervening party to the garnishee proceedings and sought an order for the garnishee order nisi to be discharged on the ground that the Debt due by Dragon to Phoenix had been assigned to Antares (“the Assignment”).  Antares also sought a declaration that the Assignment is valid.  Dragon's stance was that the garnishee order should be discharged on the grounds that it had substantial counterclaims against Phoenix for amounts in excess of the Debt.

5.  At the hearing of the garnishee proceedings on 19 May 2004, His Honour Judge Muttrie (“the Judge”) held that the matter could not be decided on affidavits without cross-examination and Antares' application for discharge was dismissed.  Consequent upon this ruling, it's also ordered that Antares were to pay half of the costs of the garnishee proceedings of Dragon.  Those costs were taxed and allowed at $80,558.34 (“the Action Costs”).

6.  Leave to appeal was granted to Antares by the Judge and it was ordered that costs of the leave application be in the cause of the appeal and Antares were to pay $260,000 into court as security for costs of the appeal (“Security for Costs”).  The Security for Costs is duly paid into court on 19 July 2004.  And costs of the leave application was taxed and allowed at $14,164.00 (“the Leave costs”).

7.  The appeal was heard on 7 February 2005 where the Court of Appeal (“CA”) upheld the Judge's decision but for the garnishee order nisi be set aside.  It is also ordered that Antares were to pay half of Dragon's costs of the appeal.  By an Allocatur dated 30 December 2005, those costs were allowed at a total of $141,820.02 (“the Appeal Costs”).

8.  In the judgment of the appeal, it is stated that “if parties wish the court to make directions on any further conduct of the proceedings in order to resolve the issue relation to the validity of the assignment, the court will be happy to oblige and make such order as may be necessary.  The application may be made on paper”.

9.  On 23 January 2006, Dragon took out the 1^st summons.  On 25January 2006, Antares took out the 2^nd summons and on the same date, wrote to the CA for directions pursuant to what stated in paragraph 8 above.  Directions sought were answered by the CA on 27 January 2006, which inter alia, directed Antares to start the fresh action against Mr. Vallat and Dragon on the validity of the Assignment.  On 2 February 2006, Antares took out the 3^rd summons and on 8 February 2006, Dragon applied for a charging order where a charging order nisi was granted on 1 March 2006.  A statement of claim was filed by Antares on 9 May 2006 seeking a declaration as to the validity of the Assignment.

10.  At this hearing, it is agreed that it is no longer necessary for this court to deal with the 2^nd summons except for the question of costs since the seeking of directions from the CA had already concluded.

Dragon's Case

11.  Dragon submitted that the Appeal Costs is finalized with no appeal or stay and the Security for Costs is specifically for this purpose.  There is no valid ground for it not to be paid out to them.  The situation for the Appeal Costs is different from the Debt in a sense that there is no further dispute as to the Appeal Costs whilst the Debt is a disputed sum and the liability to pay the Debt had to be decided by way of a trial.  There will be cross-claim against Phoenix or Antares over the money as set off.  This is not particularized so far since Antares had not yet claim for its return.

12.  It is also Dragon's contention that the application under the 3^rd summons is misconceived and there is no basis for this application.  The application under the 3^rd summons can be based on Order 49 rule 6 or Order 45 rule 11 of the DCR or under the inherent jurisdiction of this court.  There is no longer a garnishee proceedings so Antares' attempt to frame this application under Order 49 for a stay can't stand.  And the order for payment in by the garnishee is only relevant when there is more than one party making a claim and the garnishee has no dispute in paying the sum.  This is not the case here.  Neither did Order 45 assists Antares since there's nothing happened since the judgment which would justify a stay of execution.  The inherent jurisdiction of this court is only properly invoked so as to enable the court properly to perform its function of administration of justice and the court will use its inherent jurisdiction to prevent an abuse of its own process.  The application for payment in by Antares under the inherent jurisdiction is going far beyond the mareva injunction jurisdiction.  There is no precedent for such a course and no jurisdiction of the court to make such an order.  There is no suggestion by Antares that the administration of justice will be frustrated unless Dragon pays the money into court.

13.  The liability to pay the Leave Costs and the Action Costs is not in dispute.  The Leave Costs should form part of the Appeal costs so for such to be charged over what remains in the Security for Costs is justified.  As for the Action Costs, Antares is a foreign Plaintiff and the Security for Costs is the only assets of Antares which Dragon know of which is within the jurisdiction.  It is reasonable and proper for the Charging Order nisi to be made absolute.

Antares' case

14.  Counsel for Antares submitted that if Antares had to pay the Appeal Costs, Dragon should also be required to pay the Debt into court.  It is also submitted that the contention by Dragon that there was a valid cross-claim is unfounded and not supported by evidence even though there is a third party proceedings against Phoenix in Hong Kong and proceedings against Antares in the U.S.A.  If Antares succeeds in it's claim, Dragon has to pay Antares.  Even if Antares fails, Mr. Vallat is entitled to payment.  The compelling question is who should Dragon pay the Debt.  Where the garnishee is facing more than one party making a claim, the court can and should order payment in pending the resolution of the rival claim (George Lee v Olink [1972[ 1 AER 359].

15.  It is suggested that Dragon should be ordered to make the payment in of the Debt and the payment out to Dragon should be stayed pending the final determination of the claim against Mr. Vallat and Dragon on the Assignment.  In any event, there should not be any payment out before Dragon pays in the Debt.

The 1^st summons – Payment out for the Appeal Costs

16.  I agree with the submission made by counsel for Dragon.  There is no dispute that Antares has the liability to pay the Appeal Costs.  The Security for Costs is clearly paid in for the purposes of settling the Appeal Costs.  I really can't see any valid reason for Dragon to be deprived of this request for payment out.

The 3^rd summons – Stay of Payment Out and Payment in by Dragon 

17.  As conceded, the stay application can only be proceeded based on the inherent jurisdiction of this court.  The inherent jurisdiction should only be exercised when it is just and aquitable to do so.  As stated above, I found no valid reason to deprive Dragon of the Appeal Costs, not even a stay.  To stay the execution of payment out is neither just nor aquitable.  The contention that Dragon had to pay either Mr. Vallat or Antares is misconceived since the liability of Dragon to pay is unsettled before it's cross-claim is being dealt with.  It is not the function of this court to make a finding at this hearing as to whether Dragon's claim is substantiated or not.  As stated in the judgment of the CA, the issue on the validity of the Assigment and the cross-claim of Dragon required a trial.  I found nothing raised by Antares can support a payment in application and to order Dragon to make the payment into court at this stage is unjustified.

4^th summons – Charging Order nisi be made absolute

18.  There is no dispute that Antares has the liability to pay the Leave Costs and the Action Costs which are final.  There is no issue taken that Antares do not hold any beneficiary interests in the Security for Costs.  I found no reasonable cause shown by Antares that the Charging Order nisi shouldn't be made absolute.

Order

19.  I make an order in terms of paragraph 1 of the 1^st summons.  The 2^nd and the 3^rd summonses be dismissed.  The Charging Order nisi dated 1 March 2006 be made absolute.

Costs

20.  There is no reason why costs should not follow the event.  Antares should pay Dragon's costs for all 4 applications, with certificate for counsel, to be taxed if not agreed.  This is an order nisi to be made absolute upon expiry of 14 days.