UNI-RICH TECHNOLOGY LTD v. MAOSHAN ARTS AND CRAFTS (HK) CO LTD

DCCJ 810 /2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 810 OF 2012

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DECISION

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Introduction

1. This is the garnishee’s appeal against the decision of Master KK Pang given on 30 October 2012 pursuant to Order 58 r 1 RDC.  The appeal is conducted by way of a rehearing of the matter.

2. On 9 March 2012, the plaintiff commenced proceedings against the defendant for price of goods sold and delivered, totalling RMB642,727 plus interest.  Default judgment was entered against the defendant on 17 April 2012 as claimed, with costs.

3. On 20 April 2012, the plaintiff took out garnishee proceedings against the garnishee.  The plaintiff sought to attach the aforesaid judgment debt to a debt owed by the garnishee to the defendant.  An order nisi was made on 24 May 2012.  The garnishee opposed the plaintiff’s application to make the order nisi absolute.

4. On 30 October 2012, Master KK Pang made the order nisi absolute, ordering that the garnishee do forthwith pay the plaintiff the debts due from the garnishee to the defendant, or so much thereof as may be sufficient to satisfy the default judgment.  Costs orders were also made against the garnishee and the defendant, and an indemnity order against the defendant in respect of the garnishee’s costs.

The Law

5. Under Order 49 rule 1 RDC, where a person has obtained a judgment for the payment by some person of a sum of money amounting to at least $1,000 and any other person within the jurisdiction is indebted to the judgment debtor, the court may order the garnishee to pay the judgment creditor the amount of any debt due to the judgment debtor from the garnishee, or so much thereof as is sufficient to satisfy that judgment and the costs of the garnishee proceedings.

6. The court’s power to make the order nisi absolute is discretionary.  Since garnishee proceedings are essentially an equitable remedy, the court may decline to make the order absolute where the order would result in injustice or prejudice to some person other than the judgment creditor[1].

7. A garnishee order nisi will be made absolute unless the garnishee is able to show reasonable ground to the contrary.  The order absolute will be refused where it would be inequitable, eg where the garnishee faces a real or substantial risk of having to pay the same debt twice[2].

8. For example, if there is a real or substantial risk that the order absolute may expose the garnishee to double jeopardy so that he may be at risk of having to pay the same debt again, the court should refuse to make the order absolute[3].

9. Where the evidence establishes that there is a real risk that the garnishee would be compelled by a foreign court to pay the attached debt a second time, it would clearly be inequitable to make the order absolute[4].

10. The burden of proving the existence of an attachable debt rests on the judgment creditor[5].

11. The court will not garnish a debt where, although the garnishee is within the jurisdiction, the debt is recoverable outside the jurisdiction, if to do so may expose the garnishee the risk of having to pay the debt, or part of it, twice over[6].

12. To resist an order, the garnishee must show that such risk is real and substantial[7].

13. The debt owing by a garnishee to a judgment debtor which can be attached to answer the judgment debt must be a debt due to the judgment debtor alone; and that where it is only due to him jointly with another, it cannot be attached[8].

Discussion

14. Based on the affirmation of Nicole Wrbas, the garnishee’s general manager, her evidence can be briefly summarised as follows:-

(1)  the garnishee and Love Ceramics Art Co Ltd“愛陶工藝有限公司”(“Love Ceramics”) entered into a manufacturing agreement in July 2011 for the manufacture of her company’s products.  The garnishee began placing purchase orders with Love Ceramics;

(2)   in or around August 2011, it was agreed between the garnishee and one Mr Jiang Jianlong, the director of  Love Ceramics (“Mr Jiang”) that the garnishee’s purchase orders with Love Ceramics should be reissued to the defendant in order to facilitate payment for the purchase orders to be effected more conveniently in Hong Kong (“August agreement”).  Notwithstanding such change of name, both the orders prior to and after the change were made to Love Ceramics’s factory in Dung Guan City, Guangdong Province, PRC;

(3)   many of the goods manufactured by Love Ceramics were defective and rejected;

(4)   upon negotiation between the garnishee and Mr Jiang, a settlement agreement was reached on 6 March 2012 between the garnishee on one part and Mr Jiang representing both Love Ceramics and the defendant on the other part (“Settlement Agreement”);

(5)   the Settlement Agreement made no specific distinction between Love Ceramics and the defendant;

(6)   she was advised that there is a real risk that Love Ceramics may claim against the garnishee for the same debt over again under the Settlement Agreement.

15. Serious dispute as to the parties to the Settlement Agreement which was signed by Mr Jiang on behalf of the defendant and also on behalf of Love Ceramics bearing the circular chop with Chinese characters inside“東莞巿愛陶工藝有限公司”, and Mr Rob Gabbe on behalf of the garnishee. Mr Leung, Counsel for the garnishee submitted that it is a 2-party agreement whereas Ms Lee, Counsel for the plaintiff submitted that it is a tripartite agreement.

16. In the very first paragraph of the Settlement Agreement, it states that a settlement agreement was reach regarding all financial matters arising from purchase orders placed with Dong Guan LoveCeramic Art Co Ltd aka Mao Shan Arts and Grafts Co Limited (“Mao Shan”)by the garnishee during 2011.  It was also stated inter alia that the garnishee was to pay Mao Shan a sum of US$107,579.74 in full and final settlement of all outstanding claims arising from the business relationship between Mao Shan and the garnishee as of 6 March 2012.  At the end of the Settlement Agreement, just before the signatures, it was stated that the agreement “represents the full and final settlement of all financial matters between Dong Guan LoveCeramics Art Co Ltd and Mr. Christmas Ltd”.

17. Mr Leung, Counsel for the garnishee, suggested the word “aka”, not objected by Ms Lee, Counsel for the plaintiff, which may mean “also known as”.  However, I consider that it did not really make sense since according to the affirmation of Nicole Wrbas, the garnishee must know that Mao Shan Arts and Grafts Co Limited is referring to the defendant although the words “(HK)” are missing, which is a different company from Love Ceramics.  Similarly, although at the end of the Settlement Agreement, it was stated that the agreement “represents the full and final settlement of all financial matters between Dong Guan LoveCeramics Art Co Ltd and Mr. Christmas Ltd”, I consider that Dong Guan LoveCeramics Art Co Ltd must be referring to LoveCeramics, but not other company.

18. Mr Leung, Counsel for the garnishee informed me that Mr Rob Gabbe is still working in the garnishee but no explanation was given by the garnishee as to why Ms Nicole Wrbas, its general manager but not  Mr Rob Gabbe was chosen to make the affirmation on behalf of the garnishee to oppose the plaintiff’s garnishee proceedings.  In my view, Mr Rob Gabbe might be in a better position to make such an affirmation than Ms Nicole Wrbas, in particular concerning the description of the parties or the companies’ names.  In any event, I consider that it is reasonable to have at least the following interpretations regarding the parties to the Settlement Agreement:

(1)   the garnishee on one part and both Love Ceramics and the defendant on the other part;

(2)   the garnishee on one part, the defendant on the second part and Love Ceramics on the third part.

19. Nonetheless, I think that it is not really necessary to resolve this academic issue since the main contention made by Mr Leung, Counsel for the garnishee, is that there is a real and substantial risk of having to pay the debt twice by the garnishee.

20. Pursuant to the August agreement, the garnishee will facilitate payment to the defendant for the purchase orders in Hong Kong although the actual manufacture of the products will be taken place at Love Ceramics’s factory in Dung Guan City.  

21. It is undisputed that the Settlement Agreement was made with a view to resolving the dispute over the issue on defective products.  In my judgment, Love Ceramics is not entitled to claim against the garnishee for the debt under the Settlement Agreement if the garnishee did pay the same debt to the defendant pursuant to the August agreement.  Hence, if the garnishee is ordered to pay the same debt to the plaintiff pursuant to the garnishee order absolute, Love Ceramics should have no claim against the garnishee for it or the garnishee’s liability under the Settlement Agreement will be fully discharged.  The argument of the garnishee of having to pay the debt twice over is accordingly rejected. 

22. If it is necessary to resolve the issue regarding the parties to the Settlement Agreement, I am of the view that the Settlement Agreement never made any reference that the sums were payable jointly to both the defendant and Love Ceramic which in any event are separate legal entities.  In the circumstances, I am not satisfied that the debt owing by a garnishee to the defendant is a debt due to it jointly with Love Ceramics. 

23. Mr Leung, Counsel for the garnishee, then submitted at the hearing that the defendant is the agent of Love Ceramics to receive payment from the garnishee.  This “agency” argument is totally unsupported by the facts deposed to in the affirmation of Nicole Wrbas, who never said that the defendant is the agent of Love Ceramics to receive payment from the garnishee under the August agreement.  She only said in her affirmation that the reason why the August agreement was made is to facilitate payment for the purchase orders to be effected more conveniently in Hong Kong. As there is no affirmation from the defendant, Love Ceramics or Mr Jiang, it is impossible for this court to determine which party is the real principle and who is the agent.

24. Mr Leung, Counsel for the garnishee, further argued that the defendant has no right to sue the garnishee. I reject it because it was said in the affirmation of Nicole Wrbas that the Settlement Agreement was reached between the garnishee on one part and Mr Jiang representing both Love Ceramics and the defendant on the other part.  If the defendant is regarded by the garnishee as a party to the Settlement Agreement, though it was said jointly with Love Ceramics, I can see no reason why the garnishee can say that the defendant has no locus to sue the garnishee under the Settlement Agreement.  His argument seems not based on his client’s evidence.

25. Furthermore, even if the defendant has no locus to sue under the Settlement Agreement, I consider that it still has locus to sue pursuant to the purchase orders reissued to it, in which the defendant must be a party.  Mr Leung, Counsel for the garnishee, tried to argue that there is no evidence that the purchase orders did reissue to the defendant by the garnishee.  I think this argument is extremely unfair to the plaintiff since if that is the truth, Ms Nicole Wrbas should say so in her affirmation to oppose the garnishee order rather than keep it silent.  It is also unfair for the court to order adjournment just for the garnishee to clarify this point since it has the duty to tell the whole truth to the court.

26. If I am wrong in the above, I would accept the submission of Ms Lee, Counsel for the plaintiff that as Love Ceramics had been struck off and dissolved as from 9 December 2011 pursuant to section 291(6) of the Companies Ordinance Cap 32, there is no real or substantial risk for Love Ceramics to take legal action against the garnishee. Indeed, the Settlement Agreement was reached on 6 March 2012, ie about 3 months after Love Ceramics had been struck off.  That is to say, Love Ceramics has no legal capacity to enter into such an agreement with the garnishee at the material time.  Hence, the remaining party shall be the defendant who must be entitled to enforce it against the garnishee; otherwise the garnishee will be able to unfairly keep the debt under the Settlement Agreement.

27. Mr Leung, Counsel for the garnishee, further tried to argue that the risk of Love Ceramics pursuing a pre-strike-off debt does not vanish on the basis that the company, or any of its member or creditor feel aggrieved by it having been struck off, the court may within 20 years, restore the same to the register, I am of the view that such a risk even if exists is too remote and far from real or substantial.

28. First, on the death of a joint promisee, the right of action on the promise vests by common law in the survivors of them[9]. I consider that even if the debt owed to the defendant is jointly owed to Love Ceramics, on the dissolution of Love Ceramics, the right of action in the debt ie the chose in action would have passed to the defendant solely[10].

29. Secondly, such risk no yet arises unless or until Love Ceramics is actually restored pursuant to section 291(7) of the Companies Ordinance Cap 32.  Even if it is restored, it does not mean that Love Ceramics will really commence legal action against the garnishee for recovery of the debt under the Settlement Agreement, especially when the time for such claim may have exceeded 6 years time bar pursuant to the Limitation Ordinance.

30. Thirdly, although Mr Leung, Counsel for the garnishee, contends that the Love Ceramics which was alleged to have been dissolved is not the same company under the Settlement Agreement, I disagree with his contention based on the following reasons:-

(1)   According to the affirmation of Nicole Wrbas, the garnishee had never disputed that they are not the same company.  Upon being notified that Love Ceramics had been dissolved with the relevant documents attached for their reference, the garnishee’s solicitors in their letter dated 22 October 2012 still did not raise the complaint that the two companies are not the same.  Rather, they merely demanded legal authority in support of the contention that debts allegedly owed to Love Ceramics would become fully discharged upon being dissolved.

(2)   In my view, the plaintiff has already satisfied this court that on balance of probability, the two companies are the same, bearing in mind that the name of the company as appeared in the signing page of the Settlement Agreement and the manufacturing agreement is the same as Love Ceramics, the dissolved Love Ceramics had also been controlled by the same person Mr. Jiang and had the address in “Dongguan City, PRC”.  I consider that the garnishee has to adduce more evidence to prove that they are different companies rather than just making a bare assertion by the Counsel.

31. The next argument made by Mr Leung, Counsel for the garnishee is that because of the foreign law and exclusive jurisdictional clause in the manufacturing agreement, this court should refrain from attaching judgment debts to the purportedly attachable debt since the Settlement Agreement stemmed from a dispute that arose out of the manufacturing agreement and the Settlement Agreement should also be subject to New York laws and the exclusive jurisdiction of US courts.  As such, there would be a real and/or substantial risk that making the order absolute might expose the garnishee to some kind of double jeopardy – it may be at risk of having to pay the same debt twice.

32. It is noteworthy that the manufacturing agreement was an agreement made amongst Mr. Christmas Incorporated, a New York State incorporated company, the garnishee and Love Ceramics whereas the Settlement Agreement was only made between the garnishee on one part and the defendant and Love Ceramics on the other part (as said by Nicole Wrbas in her affirmation).  The parties to these 2 agreements are not the same.  In my judgment, the fact that the manufacturing agreement is subject to New York laws and the exclusive jurisdiction of US courts does not mean that the Settlement Agreement should also be the same.  It all depends on the relevant parties’ intention at the time of entering into the Settlement Agreement.  Accordingly, I reject Mr Leung’s submission.

33. Mr Leung, Counsel for the garnishee, submits that according to clause (3) in the Settlement Agreement, “Mao Shan” and any 3^rd party who may have any potential claim against the garnishee under the purchase orders, thereby released and discharged the garnishee from all claims, cause of action, suits or institution of whatever nature howsoever arising.  By the present proceedings, the garnishee has been dragged into a claim that is clearly covered by the said clause (3).  The garnishee is therefore entitled to counterclaim against the defendant for damages which could diminish or potentially extinguish the debt due to the defendant.

34. I disagree with his submission again.  I consider that the parties to the Settlement Agreement must intend that with payment made to the defendant as provided thereunder, any potential claim against the garnishee under the purchase orders would be released and discharged.

35. In the circumstances, it is difficult to understand how the garnishee could possibly suffer any loss or damage due to the alleged breach of the said clause (3).  Even if the garnishee did suffer some loss, I consider that it shall not prevent the plaintiff from taking out these garnishee proceedings which the plaintiff is lawfully entitled to do upon obtaining default judgment against the defendant.  In any event, the garnishee may commence a fresh legal action against the defendant for recovery of damages, if any.

36. To conclude, the garnishee order nisi shall be made absolute since the garnishee is unable to show reasonable ground to the contrary.  The garnishee has simply failed to establish a real and substantial risk of having to pay the debt twice.  I shall exercise my discretion and power to make the garnishee order nisi absolute, which is equitable in this case.  In my judgment, such an order would not result in injustice or prejudice to the garnishee.  The garnishee’s appeal should be dismissed with costs order nisi that the garnishee shall pay costs of this appeal to the plaintiff, to be taxed if not agreed, with certificate of Counsel.