823 INVESTMENT LTD v. RICHLY BRIGHT INTERNATIONAL LTD

HCA 1452/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1452 OF 2010

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BETWEEN

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J U D G M E N T

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Introduction

1.  In September 2012, the plaintiff, 823 Investment Limited (‘823’), instituted the garnishee proceedings which are the subject of this appeal.

2.  It did so in order to enforce its judgment dated 1 April 2011 against the defendant, Richly Bright International Limited (‘Richly Bright’) in HCA 1452/2010, the judgment – so it has been put on behalf of the plaintiff - requiring Richly Bright to pay two sums of money to the plaintiff; first, a sum of $8,092,339.50 and, second, by way of an indemnity payment, a sum of $8,704,210.50.

3.  The garnishee proceedings were founded on the fact that the garnishee, De Monsa Investments Limited (‘De Monsa’) was itself indebted to Richly Bright in the sums of $9,000,990.00 and $8,704,210.50 pursuant to a judgment dated 15 October 2012 obtained in HCA 548/2012, the second sum, that of $8,704,210.50, being specified in an order under the judgment to the effect that De Monsa indemnify Richly Bright against that sum (and any further sums and legal costs) due by Richly Bright to 823 in terms of the judgment that 823 had obtained against Richly Bright in HCA 1452/2010.

4.  The garnishee proceedings were opposed by De Monsa either in part or in whole on the basis that the payment due by way of indemnity in the sum of $8,704,210.50 had not yet fallen due.  The Master accepted that argument and in the result the Garnishee Order  Absolute required De Monsa, as the garnishee, to pay the sum of $8,092,339.50 to the plaintiff but not the sum of $8,704,210.50 which I will describe as the ‘indemnity sum’.

5.  The appeal before me has been brought by the plaintiff, 823, on the basis that the refusal of the Master to order payment of the indemnity sum is wrong in law.

Background

6.  It appears that this appeal is one of a number of related actions which have given rise to a number of related judgments.  In two such judgments dated 11 July 2013 (CACV 247/2012) and 15 October 2012 (HCA 548/2012 Yuen JA and Le Pichon DHCJ respectively gave brief factual backgrounds to the inter-related disputes which I can do no better than paraphrase.

7.  There were a series of ‘confirmor’ sales of a property in New Mandarin Plaza.  The owner, a company known as Win Profit, agreed to sell the property to a company called World Orient which in turn agreed to sell to the plaintiff in this appeal, 823. In its turn, 823 agreed to sell to Richly Bright which in turn agreed to sell to De Monsa.  Each of the buyers in the series had paid a deposit and each would have made a profit if the transaction was completed.  All the sales were to have been completed on 17 September 2008.

8.  De Monsa, however, did not pay the balance of the purchase price.  This led to the confirmors up the line also defaulting on their purchases. The chain reaction led to the following actions:

(1) HCA 24/2009 between World Orient and 823;

(2) HCA 1452/2010 between 823 and the Richly Bright, and

(3) HCA 548/2012 between Richly Bright and De Monsa.

9.  In HCA 24/2009, judgment was entered against 823 on 25 February 2010 to the following effect:

(1) 823’s deposit of $18,561,919.50 was forfeited by World Orient, and

(2) 823 was ordered to pay World Orient $8,704,210.50 for loss of profit and to indemnify World Orient.

10.  As I have stated earlier, in HCA 1452/2010 judgment was entered against Richly Bright on 1 April 2011, Richly Bright being ordered to pay 823:

(1) $8, 092,399.50 for loss of profit, and

(2) $8,704,210.50 by way of indemnity to 823 in respect of the latter's payment of that amount to World Orient.

11.  In this action, it is relevant to note that judgment was entered in favour of 823 by way of consent, the procedure being adopted, first, of an order being made by a Master upon the joint application of the parties to the effect that there be liberty to enter judgment against Richly Bright, the defendant and, second, of that order being followed by a ‘judgment’ dated 1 April 2011 which read:

“Pursuant to the Order of Master Ko dated 1 April 2011, whereby it was ordered, inter alia, that the plaintiff be at liberty to enter judgment as hereinafter provided against the defendant.

It is this day adjudged that the defendant to pay the plaintiff (i) the sum of $8,092,339.50 (inclusive of interest); (ii) and indemnity for the sum of $8,704,210.50 (inclusive of interest and legal costs) arising from the claim made by World Orient against the plaintiff pursuant to the judgment dated 25 February 2010 in HCA 25/2009…”

12.  It should also be said that while there was no declaration to the effect that 823 was entitled to forfeit the deposit of $19,989,990 paid to it by Richly Bright, equally there was no order for 823 to refund the deposit to Richly Bright.

13.  In the final action, judgment was entered against De Monsa, it being ordered to pay Richly Bright damages in the sum of $9,000,990.00 for loss of profits, forfeiture of deposit and the like.  In addition, it was ordered that De Monsa:

“… do indemnify the plaintiff (Richly Bright) against the sum of $8,704,210.50 and any further sums and legal costs due from the plaintiff to 823 under the judgment dated 1 April 2011 in HCA 1452/2010.”

The manner in which judgment was obtained in HCA 1452/2010

14.  As I have indicated earlier, judgment in this action was obtained by consent.  The defendant in the action, Richly Bright, chose not to be represented in the appeal.

15.  Notwithstanding this, much time was taken up during the course of the hearing looking to the process in terms of which the consent judgment was obtained in HCA 1452/2010.  This is because the consent summons was to the effect that the plaintiff, 823, be at liberty to enter judgment against the defendant, Richly Bright, for “an indemnity for the sum of $8,704, 210.50”, that wording being reflected in the original ‘order’ of Master Ko.  However, the ‘judgment’, seemingly issued on the same day as the ‘order’, advanced matters by stating that the defendant “do pay… an indemnity for the sum of $8.704, 210.50”.

16.  As Mr Wou, for De Monsa, the garnishee, pointed out, there is a material difference between an order that a party do indemnify another for a specific sum and an order that a party do actually pay the sum by way of an indemnity.  The giving of an indemnity and no more, submitted Mr Wou, acts like an insurance, only being paid when the indemnifier is called upon to make payment in appropriate circumstances.  In short, an indemnity, while it acts as a form of guarantee to hold harmless the party in whose favour it is made, must be activated in an appropriate manner before any payment pursuant to the indemnity is made.  It appeared to be Mr Wou’s argument that liability under an indemnity is not enough of itself to trigger the requirement to make payment.

17.  When looking to the process by which the judgment by consent was obtained in HCA 1452/2010, it seems to me that I am entitled to take the following into account.

18.  First, the defendant in the action, Richly Bright, took no exception to the manner of the culminating ‘judgment’ or ‘order’. It did not seek to go back before the Master for any form of rectification.  More than that, it has not chosen to be represented in this appeal.

19.  Second, I do not see that it is my place in this appeal, on the basis of an essentially contractual document, the consent summons, to explore whether there should be any form of rectification.  The law, as I understand it, is settled. In order to determine the common intention of the parties to an agreement embodied in a consent order or judgment the intention of the parties must be construed by reference to the order itself.  Extrinsic evidence of what may or may not have been in the minds of the parties at the time of their agreement is not admissible for this purpose.  In this regard, for example, see Lam Yim Kam Johnson v Lam Yim Hing David (unreported) HCA 642/2001 dated 3 September 2002 in which the Recorder (in paragraph 16) made reference to Foskett, The Law and Practice of Compromise, 5^th Ed.

20.  In the result therefore I am satisfied that I must take the culminating ‘judgment’ or ‘order’ as being in the form that I have cited in paragraph 11 above.

21.  Looking to matters more broadly, what then is the result?  The result, as I see it, is that 823 has obtained a judgment against Richly Bright in terms of which, as matters stand, Richly Bright has been found liable to make a payment in a specified sum to 823 in order to indemnify it against losses which 823, in its turn, has been adjudged to be liable to pay to World Orient.  Having been adjudged to be liable to make a payment in a specified sum to 823, Richly Bright has proceeded to obtain judgment against De Monsa in terms of which De Monsa has been held liable to indemnify Richly Bright in the same amount.

22.  I pause at this juncture to observe that there is no evidence that 823 has yet paid to World Orient the sum of $8,704,210.50 pursuant to the judgment in HCA 24/2009 nor been served with an official demand to do so.  In terms of the judgment, however, it is patently liable to make payment.

The plaintiff’s case in this appeal

23.  On behalf of the plaintiff, Mr Chong has emphasised that the old common law position that an indemnity is confined to protecting the indemnified against actual loss and not simply against liability no longer reflects the law.  In this regard, I was referred to British Union and National Insurance Company v Rawson [1916] 2 Ch 476 in which Pickford LJ observed:

“It has been stated in several cases that at common law an indemnity is confined to protecting the indemnified against actual loss and not against liability… However this may be, the indemnity is not so confined in equity… in equity the indemnified may call upon the indemnifier to pay the debt either to him or to the principal creditor before having paid himself, and if paid to him the indemnified has no concern with what he does with the money.” [my emphasis]

24.  That this is the state of the modern law has been stated in Firma C-Trade SA v Newcastle Protection and Indemnity Association [1991] 2 AC 1 in which Lord Brandon (in his speech at 28 A-C) said:

“There is no doubt that before the passing of the Supreme Court of Judicature Acts 1873 and 1875, there was a difference between the remedies available to enforce an ordinary contract of indemnity (by which I mean a contract of indemnity not containing any express “pay to be paid” provision) at law on the one hand and in equity on the other. At law the party to be indemnified had to discharge the liability himself first and then sue the indemnifier for damages for breach of contract. In equity an ordinary contract of indemnity could be directed to be specifically performed by ordering that the indemnifier should pay the amount concerned directly to the third party to whom the liability was owed or in some cases to the party to be indemnified. Johnston v Salvage Association (1887) 19 QBD 458, 460 per Lindley LJ; British Union and National Insurance Co. v Rawson (already cited). There is further no doubt that since the passing of the Supreme Court of Judicature Acts 1873 1875 the equitable remedy has prevailed over the remedy at law.” [my emphasis]

25.  As I see it, therefore, as the law now stands, an indemnified party may seek a remedy in terms of which he is able to call upon his indemnifier to pay an amount on the basis only that he is now himself liable to pay it and wishes it to be paid on his behalf or even paid direct to him.  Once the indemnifier has made the payment he is no longer concerned with the matter.

26.  Mr Chong accepted that it may be difficult to put such a remedy into effect if the amount to be paid under the indemnity remains uncertain.  In the present case, however, it was his submission that the amount for which 823 is liable is quantified.  It is open to a court to include the quantified sum representing an indemnity in an overall award of damages, he said - see iRiver Hong Kong Limited v Thakral Corp (HK) Limited [2008] 4 HKLRD 1001 at 1013, paragraphs 76 -78.

27.  In the present case, said Mr Chong, 823 was liable to World Orient in the sum of $8,704,210.50. Richly Bright was, by a judgment of the Court, liable to pay that same sum to 823 to indemnify its loss and, in its turn, De Monsa was liable, by a further judgment of the Court, to indemnify the loss of Richly Bright in the exact same sum.

28.  As I understood him, it was Mr Chong’s submission that the nexus that bound the three parties in the garnishee proceedings was one of liability.  That liability of itself, without any evidence that 823 had fully discharged it by paying World Orient, was sufficient to enable the court to make a garnishee order absolute in terms of which De Monsa paid the quantified indemnity sum direct to 823.

29.  Mr Chong disputed that, despite the architecture of the judgments, there remained some obligation to put into effect a mechanism such as a formal demand that would trigger the requirement to make payment to 823 either by Richly Bright or, as a garnishee, by De Monsa.

The case for De Monsa

30.  On behalf of De Monsa, Mr Wou put central emphasis on the requirement of O.49, r.1 of the Rules of the High Court to the effect that garnishee proceedings are dependent upon a judgment creditor (in the present case this being 823) obtaining either a judgment or an order for “the payment by some other person (the judgment debtor, that is Richly Bright) of a sum of money”  Mr Wou argued that, no matter how it is looked at, the second order made in HCA 1452/2010 did not constitute an order for the payment of money.  It constituted merely an order that Richly Bright do indemnify 823.

31.  I do not agree. An ordinary reading of the culminating document (cited in paragraph 11 above) is clearly an order for payment of a specific sum.  It is just that the nature of the sum is described as “an indemnity” (just as it may in another context, for example, have been described as damages).  I see no other way of reading it.

32.  Once liability has been established, I see no reason why a court cannot order that a specified sum be paid to another party as and by way of, or arising out of, an obligation of indemnity. That is what has happened in the ‘judgment’ just cited.

33.  De Monsa, of course, was not ordered to make a payment to Richly Bright by way of an indemnity.  It was ordered rather that it “do indemnify” Richly Bright in respect of the sum of $8,704,210.50.  But O.49, r.1 requires only that the garnishee be “indebted” to the judgment debtor and that De Monsa, as garnishee, has at all material times been indebted to Richly Bright pursuant to the judgment in HCA 548/2012 is common cause.  Accordingly, at all material times the relationship of creditor and debtor has existed between Richly Bright and De Monsa, enabling Richly Bright to sue De Monsa for the amount of $8,704,210.50.  That, in my view, is sufficient for the purposes of a valid garnishee order.

34.  I accept of course that a court has a discretion whether or not to make a garnishee order absolute and, if so, in what amount.  That being said, nothing has been put before me by either counsel to suggest that considerations other than those canvassed in this judgment were taken into account by the Master.

Conclusion

35.  For the reasons given, I am satisfied that this appeal should be allowed.  The orders sought in the notice of appeal dated 24 April 2013 are granted.