EVER GOOD TRADING CORPORATION v. CHENG CHING KWOK t/a BONANZA INDUSTRY CO AND OTHERS

Costs - garnishee proceedings - whether prescribed garnishee fixed costs mandatory - where garnishee successfully shows cause against order absolute being made whether Court has a discretion to award costs on a higher party and party, common fund or indemnity basis - express provision in Rules for party and party, common fund and solicitor and own client costs but although no expression provision in Rules also jurisdiction to order costs on indemnity basis - position of Bank garnishee disclosing accounts other than those known to judgment creditor and garnishee proceedings as a consequence being complicated and prolonged - Held: 1. Fixed costs not mandatory but prima facie payable unless particular facts of the garnishee proceedings displace that presumption; 2. Where particular facts displace prima facie rule Court has a general discretion as to costs which may in ascending order be granted on a party and party, common fund or indemnity basis; 3. In the case of Bank garnishees and other innocent third parties the costs practice which has evolved in Mareva injunctions and discovery cases provides by way of analogy useful guidance; 4. Where a Bank becomes involved in Court proceedings through no fault of its own and is under a duty to make disclosure for the benefit of another party or on reasonable grounds properly does so, the expenses incurred by the Bank ought generally to be paid by that other party; 5. Judgment creditor ordered to pay Bank garnishee costs on a party and party basis - Rules of the Supreme Court Order 49 Rule 4; Order 62 Rules 3(2), 28, 29, 32(1), (4), First Schedule, Second Schedule, Cap.4.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

H.C.Action No. 5205 of 1986

____________

BETWEEN

__________

__________

JUDGMENT

__________

1. This is an appeal, in relation to costs, brought by the 2nd Garnishee, Banque Nationale de Paris (hereinafter called "BNP") against a decision of a Master on 22nd May 1987 authorising BNP to deduct $100 by way of costs from the sum of $876.36 which it was ordered to pay the judgment creditor. The judgment debtor was a customer of BNP and the sum of $878.36 was the amount standing to the judgment debtor's credit in Account No. 111-00578-08 with BNP. That account was held in Hong Kong dollar currency.

2. In the notice of appeal BNP asks that that $100 costs award be set aside and that the judgment creditor pay BNP's costs on either a party and party basis or alternatively on a solicitor and own client basis. At the hearing Counsel for BNP advanced his submissions in the reverse order, namely that costs should be awarded on a solicitor and own client basis but, if not, then on a party and party basis.

3. Counsel for the judgment creditor sought to uphold the Master's order for costs in the sum of $100. I record that appeals from Masters are by way of actual rehearing. Therefore although the nature of the proceedings before me are formally by way of appeal, I am required to treat the appeal as if it were an application coming before me for the first time. The awarded costs of $100 were in fact the fixed costs available in garnishee proceedings, where an affidavit is filed, as provided by Order 62 in Part III to the Second Schedule of the Rules of the Supreme Court, Cap.4.

4. The principal issue on this appeal is whether, in the particular circumstances of these garnishee proceedings, First Schedule costs according to scale should be awarded or whether Second Schedule fixed costs, are more appropriate. Before going on to consider that issue in more detail, it is first necessary to review the factual background which culminated in the fixed costs order being made.

5. On 24th October 1986 the judgment creditor obtained judgment against the judgment debtor for $70,200 together with interest, damages to be assessed and costs. On 19th March 1987 the judgment creditor filed an affirmation in support of an application for garnishee orders against the 1st, 2nd, 3rd and 4th Garnishees. In that affirmation it was alleged that the judgment creditor believed that the judgment debtor had maintained Account No. 111-00578-08 with BNP. On 24th March 1987 an order nisi to show cause was made against BNP and the other garnishees in the terminology prescribed by Form No. 72 of the Rules of the Supreme Court. Accordingly the debts attached, as against BNP, under the Order Nisi were not merely the monies in Account No. 111-00578-08 but extended to "all debts due or accruing" from BNP to the judgment debtor.

6. The order nisi further ordered BNP and the other garnishees to attend before the Master on 9th April 1987 and make payment or, in accordance with practice, otherwise show cause why payment should not be made. On 8th April 1987, Mr. M.C. Wong, an officer of BNP, affirmed and filed an affirmation in response to the order nisi. This affirmation was before the Master at the hearing on 9th April 1987 when all the parties were present or represented. I accept, however, that a copy was not served on the judgment creditor until 10th April 1987.

7. Mr. Wong's affirmation confirmed that the judgment debtor had Account No. 111-00578-08 with the BNP and that the credit balance in that account, as at 25th March 1987,was $878.36. However, the affirmation went on to disclose that the judgment debtor also had a second account with BNP under No. 114-08265-01 which was held in Australian dollars. As at 25th March 1987 the credit balance was Australian $1,152.36 which, at that date, was roughly equal to Hong Kong $6,222.744. I accept that until Mr. Wong's affirmation the judgment creditor was unaware of this second account in Australian dollars.

8. At the hearing on 9th April 1987, the order nisi was made absolute against all the garnishees other than BNP; the plaintiff was ordered to pay the lst garnishee's costs; and the judgment creditor's costs were ordered to be added to the judgment debt. The hearing against BNP was adjourned to 21st May 1987. The reason for the adjournment related solely to the Australian dollars account. At the hearing on 9th April 1987, BNP indicated that it would not oppose an order absolute in relation to Account No. 111-00578-08 in Hong Kong dollars. However, as Mr. Wong's affirmation had set out, the credit balance in the Australian dollar account, was subject to a Blocked Deposit Undertaking in favour of BNP dated 4th November 1985, held as security for a guarantee BNP had given, for the judgment debtor, to Cable & Wireless (Hong Kong) Ltd. I am informed that when BNP raised this matter with the Master, he himself indicated that he would require to hear further argument on that issue and adjourned the proceedings, against BNP only, to 21st May 1987.

9. On 21st May 1987, after hearing argument, the Master made several orders. First, he ordered BNP, after deducting $100 costs, to pay the balance of the sum of $878.36, in respect of the Hong Kong dollar Account No. 111-00578-08, to the judgment creditor. Secondly, he ordered that the order nisi, so far as it related to Account No. 114-08265-01, which comprised the Australian dollars, was to be discharged. No separate order as to costs was made in relation to the order of discharge.

10. Counsel for BNP recognised that the Second Schedule to Order 62 makes express provision for fixed costs for garnishee proceedings in the sum the Master ordered. However, he submitted that fixed costs are not mandatory and the nature of any order for costs remains discretionary. It was submitted that BNP was an innocent third party, which only became involved in these proceedings because the judgment creditor had sought its assistance, to recover the fruits of its prior judgment against the judgment debtor.

11. To determine whether fixed costs are mandatory in garnishee proceedings, it is necessary to consider the provisions of Order 62. The general principle in relation to costs is contained in Order 62 Rule 28 which provides that costs ordered to be paid by one party to another party, way be directed to be taxed on a party and party basis or alternatively on a more generous common fund basis. Rule 32 deals with the scale of costs. Rule 32(1) provides inter alia that, subject to the following provisions of that Rule, the scale costs contained in the First Schedule, shall apply to the taxation of costs ordered to be paid. One of those following exceptional provisions, is to be found in Rule 32(4) which provides:

"(4) Notwithstanding paragraph (1), costs shall, unless the Court otherwise orders, be allowed in the cases to which the Second Schedule to this Order applies in accordance with the provisions of that Schedule."

12. I am satisfied that where Rule 32(4) applies, those provisions do not make fixed costs mandatory. Rule 32(4) merely reverses the general provision for scale costs in Rule 32(1). Where Rule 32(4) applies the fixed costs prescribed by the Second Schedule are payable "unless the Court otherwise orders."  In such cases, as an exception to the general rule, fixed costs are prima facie payable but the Court retains a discretion to order scale costs.

13. Where a garnishee order is made absolute, it is only where the Court does not otherwise order, that it becomes mandatory to allow the garnishee to deduct from any attached monies he holds, the fixed sum of $50 if no affidavit is used and the fixed sum of $100 if an affidavit is used, before paying such monies to the judgment creditor. But it is only to that limited and perhaps misleading extent, that fixed costs, to be paid by way of deduction, are mandatory. Before that stage is reached, the Court has a discretion whether to order scale or fixed costs. If the Court exercises its discretion in favour of scale costs, all that Rule 32(4) requires, is that the exercise of that discretion in favour of scale costs should be made expressly.

14. As to the manner in which that judicial discretion, should be exercised neither Counsel were able to refer me to any Hong Kong authorities. Counsel for BNP pointed out that, in most cases, a Bank named as a garnishee, will normally play no major part in proceedings. After checking the identity of the judgment debtor and the amount to his credit in the Bank's books, the Bank will usually be content for an order absolute to be made. In such cases fixed costs of $50 or $100 may well be appropriate. I infer that, if in this case only the Hong Kong dollar Account No. 111-00578-08 had existed, BNP would have accepted the fixed costs order and this appeal would not have eventuated. However, BNP's submission is that because of the complications caused by the Australian dollar Account No. 114-08265-01, it was much more substanially involved and the minimal fixed costs of $100 are not appropriate for the actual expenses incurred by the Bank.

15. Counsel for BNF invited me to consider the appropriate basis of costs, by analogy with the position which has developed in Mareva injunctions and also exists in relation to discovery. In these areas I was referred to a number of cases which support the proposition that where a party seeks the aid of an innocent third party, that party should pay the innocent third party's expenses. The general principle which applies to Mareva injunctions was summed up by Lord Denning M.R. in Rahman v. Abu-Taha (1980) 1 WLR 1268, 1273 in these words:

"…when there is a Mareva injunction of this kind, if the people who are notified of it are put to expense in regard to it, that expense must be paid by the plaintiff."

That principle was also referred to in Z Ltd v. A-Z and AA-LL (1982) 1 QB 558. I was also referred to the similar practice followed in discovery cases as illustrated by Bankers Trust Co. v. Shapiro (1980) 1 WLR 1274 where, at page 1282, Lord Denning M.R. stated:

"The plaintiff must of course give an undertaking in damages to the bank and must pay all and any expenses to which the bank is put in making discovery."

16. Finally on discovery, I was referred to the House of Lords judgment in Norwich Pharmacal Co. v. Customs and Excise Commissioners (1974) AC 133. At page 175 Lord Reid, after referring to earlier authorities, observes:

"They seem to me to point to a very reasonable principle that if through no fault of his own a person gets mixed up in the tortious acts of others so as to facilitate their wrong-doing he may incur no personal liability but he comes under a duty to assist the person who has been wronged by giving him full information and disclosing the identity of the wrongdoers. I do not think that it matters whether he became so mixed up by voluntary action on his part or because it was his duty to do what he did. It may be that if this causes him expense the person seeking the information ought to reinburse him."

17. The facts in the instant proceedings are rather different to those before the House of Lords. What BNP submits is that following the order nisi, BNP was under a duty to the Court to disclose all debts due to the judgment debtor including the Australian dollar account earlier unknown to the judgment creditor. Failure to make full disclosure would have rendered BNP liable to contempt.

18. Counsel for the judgment creditor sensibly accepted that it was not mandatory for the Master to have ordered fixed costs but submitted that in the case of garnishee proceedings that was the prima facie rule. I accept that submissions.  However, particularly in the discretionary field of costs, where the facts in each case are invariably different, the prima facie position created by Rule 32(4) may in practice often be displaced.

19. In the present case, it was submitted for the judgment creditor, there were simply no exceptional facts which could result in that presumption, in favour of fixed costs, being displaced. It was pointed out that the judgment creditor had only raised the Hong Kong dollar account for which payment was uncontested and fixed costs were appropriate; that the complications in relation to the Australian dollar account arose from BNP's own decision to guarantee the judgment debtor's position with Cable & Wireless (Hong Kong) Ltd; that the judgment creditor was also an innocent party to whom the judgment debtor owed money.

20. As to the authorities cited by BNP, Counsel for the judgment creditor pointed out that they were concerned with the different position relevant to Mareva injunctions and discovery. None involved garnishee proceedings. The former procedures were both incidental to substantive relief claimed in particular actions. On the other hand, garnishee proceedings are a form of independent relief. On this point I was referred to Llewellyn v. Carrickford (1970) 2 All ER 24 where it was held that garnishee proceedings are not merely proceedings in the action on whose judgment they are based but are independent proceedings in their own right. On the other hand, Mareva injunctions and discovery are necessarily parasitical of the substantive action in which they arise.

21. Counsel for the judgment creditor confirmed that further argument only became necessary after the Australian dollar account was revealed by BNP. He emphasised that the judgment creditor did not initiate this unanticipated complication and that it only resulted from BNP's later disclosure. In the judgment creditor's view it was unnecessary for that disclosure to have been made and the judgment creditor would have been content had the garnishee proceedings against BNP been finally disposed of simply on the basis of the Hong Kong dollar account. In that event an order absolute would only have been a formality and could have been made at the first hearing on 9th April 1987.

22. Where garnishee proceedings fail, it is clear the Court has a wide discretion as to costs. On this point Counsel for the judgment creditor referred me to the English Court of Appeal judgment in T. Wright & Son (Hull) Ltd v. Westoby (1972) 3 All ER 1078. When garnishee proceedings, disputed between judgment creditor and the garnishee, fail that discretion extends, in proper cases, to ordering the judgment debtor to pay the costs of the failed garnishee proceedings. The wide general discretion as to costs referred to in that judgment by Sachs L.J., at page 1081, under Section 50 of Supreme Court of Judicature (Consolidation) Act 1925, is now to be found in Section 51 of the Supreme Court Act 1981. In Hong Kong substantially the same discretion is vested in our Courts by Order 62 Rule 3(2) of the Rules of the Supreme Court, Cap.4.

23. Sachs L.J., at page 1082, deals in some detail with the correct approach, where a Court has to consider costs incurred in unsuccessful garnishee proceedings. On that question, Sachs L.J., observed:

"It seems to me that one can adopt as a starting point that where a judgment creditor takes garnishee proceedings without being led into them by the judgment debtor, he does so at his own risk as to costs .... On the other hand, there can arise a wide range of cases in which on the particular facts it is open to the court to find the existence of grounds on which in its discretion it may consider the judgment debtor ought to bear the costs."

On the basis of that judgment, the judgment creditor asserts that it was led into the present prolonged garnishee proceedings, by BNP and that the fixed costs already awarded are adequate. Further, if additional costs are payable they should be ordered to be paid by the judgment debtor and not by the judgment creditor.

24. After considering Counsel's submissions I am satisfied that in probably a majority of garnishee proceedings, the prima facie provision in Rule 32(4) for fixed costs of $50 or $100, will be appropriate and reasonable. In such proceedings the judgment creditor is normally aware from the judgment debtor or other reliable sources, that a Bank is holding monies in one of its normal current or savings accounts for the judgment debtor.  In those clear and uncontested cases, all the Bank garnishee requires, is a formal order absolute from the Court, to enable it to pay over the balance standing to the credit of the account, to the judgment creditor, contrary to its earlier contractual obligation to the judgment debtor customer. No doubt the desirability in execution proceedings of keeping costs to a minimum and to exclude the further expense of taxation, is the reason why Part III of the Second Schedule provides for fixed costs in such cases. This is the order usually made where, under Order 49 Rule 4, the garnishee either does not appear or does not dispute liability. An order absolute is then made forthwith.

25. However, the present proceedings do not fall into that category. This is not a case where a formal order on undisputed facts was made. The complications caused by the security purposes for which the Australian dollar account was used, resulted in the judgment creditor's application for an order absolute being opposed; the Master being obliged to adjourn the application for further argument; and at the adjourned hearing the order absolute, in respect of the contested account, being refused. I am satisfied that these are the very kind of circumstances, where the prima facie limited entitlement to fixed costs under Rule 32(4), is displaced and the Court's general discretion as to costs is reinstated.

26. I now move on to determine, in the light of the particular facts of the present garnishee proceedings, how the Court's general discretion as to costs should be exercised. As to the analogy BNP sought to draw with the costs position in Mareva injunctions and discovery, I accept that none of the cases cited dealt with garnishee proceedings. I also accept that it is elementary that there are differences between these various forms of procedure. However, in my view, there are sufficient similarities, on the narrow issue of costs, to make those cases of assistance on matters of general principle.

27. Where a Bank is merely consequentially involved, in any of those proceedings, it is usually in the position of what may generally be described as an innocent third party. Llewellyn v. Carrickford is not inconsistent with this conclusion, for that case was concerned with the meaning of "proceedings" for the purposes of Section 41 of the Supreme Court of Judicature (Consolidation) Act 1925. The Court held that if garnishee proceedings were not proceedings, by reason of being proceedings in the substantive action, they would in any event by themselves quite independently of the action, be proceedings within the meaning of Section 41.

28. The Mareva injunction and discovery cases cited are, in the field of costs, illustrative of a principle which is wider than those cases themselves. That principle at least applies where a Bank or similar institution, through no fault of its own, becomes involved in Court proceedings. If as a result, the Bank is under a duty to make disclosure for the benefit of another party or on reasonable grounds otherwise properly does so, then the expense incurred by the Bank in doing so, ought generally to be paid by that other party. I am satisfied that the same principle, depending always on the facts of a particular case, may also be applied in garnishee proceedings

29. The major submission by the judgment creditor supporting the award of only Second Schedule fixed costs, was founded on the allegation that it had been led into the present Australian dollar account dispute by BNP. On that question I was referred by Counsel for the judgment creditor to the English Court of Appeal judgment in T. Wright & Son (Hull) Ltd v. Westoby (1972) 3 All ER 1078. Before going on to consider that submission, I would observe that the Court of Appeal judgment was concerned with the different factual costs position, between judgment creditor and judgment debtor and not, as here, between judgment creditor and garnishee. Subject to the qualifications in that judgment set out by Sachs L.J., the position of a judgment creditor, as to costs, against a judgment debtor, will usually be very much stronger than against a garnishee.

30. Counsel for the judgment creditor's submission seems to face two major obstacles. The first is that the judgment creditor was neither as a matter of law or fact, led by BNP into the present dispute. The earliest reference in the pleadings to BNP is contained in the affirmation of Mr. K.M.K. Ho filed by the judgment creditor on 19th March 1987 in support of the summons for a garnishee order nisi against the garnishees to show cause.   Paragraph 4 of that affirmation refers to the number of the Hong Kong dollar account held with BNP in the name of the judgment debtor. The judgment creditor's stance before me has been that because it had only named that one account, it was only thereafter necessary for BNP to make disclosure in respect of that one account. The judgment creditor submitted that it was only the unilateral decision of BNP, to disclose the further Australian dollar account, which resulted in the potentially simple and uncontested garnishee proceedings, becoming contested and prolonged. In those circumstances, it was submitted, the judgment creditor should only have to meet fixed Second Schedule costs.

31. A fatal flaw in the judgment creditor's submission is that the range of assets, subject to the garnishee proceedings it had initiated, was not limited to the assets referred to in Mr. Ho's affirmation. To the contrary, as a matter of law, the effect of the Court's Order Nisi, made on 24th March 1987, was to attach all monies held by B NP on behalf of the judgment debtor, including those in the Australian dollar account. So far as the assets affected by the garnishee proceedings are concerned, the primary and decisive document was not Mr. Ho's affirmation but the Court's own Order Nisi. Far from BNP's actions leading the judgment creditor into the present dispute, it was the judgment creditor's action in securing an Order Nisi against BNP, which led to the Australian dollar account being attached and coming in issue. To the extent that either party led the other, the reality is that it was the judgment creditor which led BNP into the present dispute.

32. The second difficulty the judgment creditor's submission faces, is that it has had ample prior opportunity to indicate if it merely sought an order absolute against the Hong Kong dollar account. However, it has previously either elected not to do so or failed to give any such indication. At the first hearing on 9th April 1987, it was open to the judgment creditor to have informed the Master that it only sought an order absolute against the Hong Kong dollar account and would not oppose the Order Nisi against the Australian dollar account being discharged. At the subsequent hearing before the Master on 21st May 1987 it had a further opportunity to have made the same election.

33. Once the Order Nisi was made, all monies held by BNP on behalf of the judgment debtor were attached.  BNP then had the election to make payment or to appear before the Master on the return date and attempt to show cause why an order absolute should not be made. In accordance with normal practice it was not only proper but helpful for BNP to cause one of its officers, Mr. M.C. Wong, to make and file the affirmation in which disclosure was made of all accounts held by the judgment debtor. In any such affirmation it would not only have been improper for only partial disclosure to have been made, but it may also have rendered BNP and its officer liable for contempt.

34. In making such disclosure I recognise it was not only proper but also in BNP'S own interest to disclose the blocked nature of the Australian dollar account and to exhibit the documents relevant to the Cable & Wireless (Hong Kong) Ltd guarantee. Indeed, if BNP was to attempt to show cause why an order absolute should not have been made in respect to the Australian dollar account, such further disclosure was both desirable and necessary. When I review the whole of the facts relevant to the issue of costs, in the light of the principles I have already adverted to, I am well satisfied that Second Schedule fixed costs would be inadequate and that this is a proper case for First Schedule scale costs.

35. The remaining matter, is to determine the precise nature of the order as to costs, between the parties. Counsel for BNP asks that costs be paid by the judgment creditor on a solicitor and own client basis or alternatively on a party and party basis. Counsel for the judgment creditor objects to costs being awarded on a solicitor and own client basis and was particularly concerned with the adverse conclusive presumption under Order 62 Rule 29. Rule 29 is concerned with costs payable to a solicitor by his own client which are often referred to as solicitor and own client costs.

36. The use of the same terminology in BNP's notice of appeal is not really apposite but I am prepared to infer that what BNP really sought, was costs on an indemnity basis. In that event Rule 29, which is limited to costs taxable between a solicitor and his own client, is not directly relevant. Although that taxing approach may be resorted to, as I will mention in a moment, by way of analogy. If BNP did not seek costs on an indemnity basis the other alternative is that it wanted costs taxed on a solicitor and client basis simpliciter.

37. The at times confusing position as to costs between parties was considerably clarified by the judgment in EMI Records Ltd v. Ian Cameron Wallace Ltd (1983) 1 Ch 59 which I refer to on my own initiative. In that case both the plaintiffs and the defendants applied for a review of taxation, which was heard by Megarry V.C., sitting with two assessors, including the Chief Taxing Master. The judgment confirmed that under the Rules of the Supreme Court there is express provision for taxation on a party and party basis - Rule 28(2); on a common fund basis - Rule 28(3)(4); on a trustee basis - Rules 28(5) and 32(2); and on a solicitor and own client basis - Rule 29.

38. In addition, to those orders under the Rules, the learned Vice-Chancellor recognised that orders are commonly made for costs between parties to be taxed on an indemnity and also on a solicitor and client basis. The Vice-Chancellor held that where costs are ordered to be paid on an indemnity basis, they should be taxed, as if they were solicitor and own client costs, in accordance with Rule 29(1). The judgment further recognises the right to order costs between parties to be paid simply on a solicitor and client basis. Although the Vice-Chancellor thought the effect of such an order may no longer be clear, if the intention was that costs were to be taxed on a common fund basis, it is preferable expressly to order that costs are awarded on a common fund basis.

39. In view of BNP's pleadings and submissions, there may remain some doubt whether BNP's application for solicitor and own client costs is in effect a request for costs to be taxed on a common fund basis or whether higher costs on an indemnity basis are sought. I confirm I will proceed on the latter basis. As will become apparent in a moment, this distinction will not affect my final order. What is clear is that where in garnishee proceedings, the prima facie rule for fixed costs is displaced, the question of costs is at large. It is then open to the Court to consider costs, taken in ascending order, on either a party and party, common fund or indemnity basis.  Each case necessarily will depend on its own facts.

40. Among the relevant factors I take into account in the instant proceedings, is that while BNP may generally be described as an innocent party, it was in its own real interest, to show cause why an order absolute should not have been granted against the Australian dollar account. In successfully showing cause, BNP preserved, to its own advantage, an account even larger than was necessary, as security for its limited contingent liability under the guarantee. This is a rather different position than where a garnishee's successful participation in proceedings is wholly gratuitous.

41. When I review all the circumstances relevant to the exercise of my judicial discretion as to the nature of the costs to which BNP is entitled, I am not satisfied that costs should be paid on either a common fund or a higher indemnity basis. Instead I hold that costs should be paid by the judgment creditor, on a party and party basis, to be assessed in accordance with Rule 28(2). In these terms the appeal from the learned Master is upheld. I also order that BNP is entitled to be paid by the judgment creditor the costs of and occasioned by this appeal, on a party and party basis, to be taxed if not agreed.