FREMERY RESOURCES LTD v. SWATI INTERNATIONAL

HCA 2056/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2056 OF 2006

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REASONS FOR DECISION

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1.  This is a hearing on a garnishee order to show course.  The garnishee bank Standard Chartered seeks to discharge the order nisi.

Background

2.  The judgment creditor (“Fremery”) has obtained a judgment dated 2 February 2007 in default of acknowledgement of service against the judgment debtor (“Swati”) in the sum of US$190,573.99 for various over-payments, etc.

3.  Swati was separately sued by Sinom (Hong Kong) Limited in HCA 2493 of 2004, and on 1 November 2004 Sinom obtained a Mareva injunction against Swati prohibiting, Swati, inter alia, in dealing with and/or disposing of its assets within Hong Kong up to US$180,000.  On 7 March 2007, Sinom obtained an interlocutory judgment against Swati for damages to be assessed.

4.  Concerning the fund with the garnishee bank, previously in 2004, Swati sold goods to Fremery.  Swati drew 2 export bills dated 5 November 2004 in the sums of US$130,722.82 and US$152,534.51 on Fremery as drawee.  Fremery is at all material times an account holder of the garnishee bank.  The garnishee bank also acted as the collecting bank in relation to 2 collection orders issued by UCO Bank on behalf of Swati in respect of the sale.

5.  The collection orders required the garnishee bank to deliver the documents against payment.  The collection orders were stated to be governed by the ICC Uniform Rules for Collection No.522 (“URC 522”).

6.  Fremery had notice of the Mareva injunction.  Sinom also notified the garnishee bank of the Mareva injunction and demanded the garnishee bank do refrain from dealing with US$180,000.

7.  On 18 November 2004, Fremery instructed the garnishee bank to notify UCO Bank of the Mareva injunction.  At the request of Swati through UCO Bank and by agreement between the parties, the collection orders were revised to allow Fremery to deduct US$180,000 from the sums payable under the collection orders.

8.  On 29 November 2004, the garnishee bank released the documents to Fremery against payment of the sums due under the collection orders (less US$180,000).  The US$180,000 is now standing in the account to the credit of Fremery with the garnishee bank.

9.  By a letter dated 13 April 2007, solicitors for Sinom made the request to be heard on the garnishee proceedings under O.49, r.6(1), RHC.  For reasons which will become apparent, I do not order Sinom to be heard.

The Issues

10.  The garnishee bank’s stance is as follows:

(1)     No debt is due or accruing from it to Swati and the garnishee order nisi should be discharged;

(2)     Under the ICC rules of collections, the normal position is that the collecting bank is to collect payment for the remitting bank and will not incur any debt or liability to any party unless it strays outside the instructions in the collection order;

(3)    The US$180,000 should be paid into court pending an enquiry under O.49, RHC, if any.

11.  Fremery’s stance is as follows:

(1)     The sum of US$180,000 is a sum due to Swati by the garnishee bank and is an attachable debt under O.49, r.1, RHC;

(2)     The Mareva injunction does not operate as a charge and does not give Sinom any priority (see Kanematsu-Gosho (HK) Ltd & anor v. Le Boon Chean & others [1986] HKLR 59 per Hunter J at p.64);

(3)     Execution by a third party under a court order would not normally, in itself, amount to a breach of the terms of an injunction because the dealing with the assets is by order of the court and not by an act of the defendant and the restrain is a personal restraint on the defendant and does not operate directly against assets (see Gee on Commercial Injunctions (5^th ed, 2004) para. 3.005).

12.  Sinom’s stance is as follows:

(1)     The US$180,000 are assets belonging to Swati and fall within the terms of the Mareva injunction;

(2)     The Mareva injunction is an aid to the interlocutory judgment by preventing the dissipation or removal of the relevant fund;

(3)     By virtue of the Mareva injunction and the interlocutory judgment, Sinom has a valid claim to the US$180,000.

Discussion

13.  Mr Seow for the garnishee bank submitted that under URC 522:

(1)     The buyer (i.e. Fremery) is the party liable for the debt due to the seller (i.e. Swati);

(2)     The role of the collecting bank is to collect what is due from the buyer to seller in terms of the instructions from the remitting bank;

(3)     The collecting bank is only authorized to accept partial payment if such payment is authorized by the seller or the remitting bank.

14.  Mr Seow submitted that the garnishee bank had throughout been acting on the instruction of the remitting bank and its principal.  The revisions to the collection orders were agreed to by the parties and specifically required the garnishee bank to deduct US$180,000 from the payment by Fremery to Swati and to retain the funds in Freeemery’s account.  The US$180,000 represents balance of purchase price from Fremery to Swati.  In the telex dated 22 November 2005 by the garnishee bank to UCO Bank, it was stated that “Drawee (i.e. Fremery) undertakes to remit USD 180,000 to you after Court order being discharged.”  The undertaking to remit was made by Fremery and not by garnishee bank.

15.  Mr Lau for Fremery submitted that at the request of Swati, Fremery withheld US$180,000 and made payment to Swati, and received the goods under the collection orders.  Hence, US$180,000 are in fact due by the garnishee bank to Swati and is an attachable debt under O.49, r.1, RHC.

16.  With respect, I agree with Mr Seow and Mr Lau cannot be right.  Whereas Fremery had received the goods without full payment to Swati, Fremery and not the garnishee bank became the debtor of Swati.  This is consistent with the fact that US$180,000 are standing in Fremery’s  own account with the garnishee bank.  There is no suggestion that the garnishee bank is holding the fund on trust for Swati.  Hence, the garnishee bank is not a debtor of Swati, but of Fremery.

Conclusion

17.  In the circumstances, I shall order that the garnishee order nisi be discharged.

18.  I make the cost order that Fremery is to pay the costs of this application to the garnishee bank.