XCHRX GOODPOINT HOLDINGS LTD. v. MARK ANTHONY SEABROOK

1996 No. A3268

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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[Where money is lent to a defendant to enable him to post cash bail on terms that the money is to be returned to the lender when the defendant's bail comes to an end, the transaction involves both a loan and a trust. If the defendant fails to surrender to his bail, and the cash bail is forfeited, the defendant is liable as a debtor to the lender. However, if the defendant's bail comes to an end without the defendant having forfeited the cash bail, the lender is entitled to the return of the money in preference to any judgment creditor of the defendant, since the money was being held on trust for the lender].

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J U D G M E N T

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THE FACTS

1. The Defendant was employed by an associated company of the Plaintiff. In connection with that employment, the Plaintiff rented a flat in Sha Tin to him. The tenancy was terminated when the Defendant's employment came to an end, but the Defendant refused to give up the flat. The Plaintiff commenced these proceedings against him. In due course, judgment in default was entered against the Defendant for arrears of rent of $54,000.00, mesne profits of $57,600.00 and the costs of the action. The Defendant did not pay any part of these sums.

2. However, these were not the only proceedings in which the Defendant was involved. He had been charged with trafficking in drugs. He had initially been remanded in custody, but in due course he was granted cash bail of $120,000.00, i.e. to use the words of section 13AA(1) of the Criminal Procedure Ordinance (Cap. 221), he was granted bail on condition that the sum of $120,000.00 "be deposited ... by [him]". This sum was deposited in cash on his behalf by his solicitors. When the Plaintiff got to hear about the deposit of the $120,000.00, it saw that deposit as a means of enforcing the judgment. Accordingly, on 1st May 1997, the Plaintiff issued a summons seeking an order restraining the Defendant from receiving the money once it became payable back to him. That is the summons now before me. The proceedings are in effect garnishee proceedings.

3. However, it was anticipated that the Defendant's trial in the District Court would finish before the summons could be heard. Accordingly, the Plaintiff applied for interim relief pending the hearing of the summons, and on 1st May, Patrick Chan J. (as he then was) restrained the Defendant from receiving the money until the Plaintiff's summons could be heard. I have two comments on the order he made:

(i) The order did not relate to the whole of the $120,000.00. It only related to such part of the $120,000.00 as would satisfy the balance of the judgment debt. That was erroneously stated in the order to be the sum of $57,600.00 (i.e. the mesne profits which had been assessed) and the costs of the action. It did not refer to the arrears of rent of $54,000.00. That was because the Plaintiff's summons had omitted any reference to the arrears of rent.

(ii) The Plaintiff, naturally enough, did not want the Defendant to forfeit the $120,000.00. Accordingly, it was in the Plaintiff's interests for the Defendant to attend his trial. The Plaintiff feared that if he knew that the $120,000,00 was liable to be paid to the Plaintiff, that might make him not attend the trial at all. Accordingly, the Plaintiff sought and obtained leave to defer service of the order until the conclusion of the Defendant's trial.

4. In due course, the Defendant was convicted. He was remanded in custody pending sentence. The Court and the Defendant's solicitors were then informed about Patrick Chan J.'s order. On 30th May, the Defendant was sentenced to four years' imprisonment. But for the order of Patrick Chan J., the Court would have ordered the release of the $120,000.00 to the Defendant. However, since the Court believed that the judgment was only for $57,600.00 and the costs of the action, but since the costs of the action had not yet been taxed, the Court ordered that the balance, i.e. $62,400.00, be released. A cheque for that amount was collected by the Defendant's solicitors on 2nd June, and they paid the $62,400.00 to the persons who claimed to have provided the funds for the cash bail in the first place. Accordingly, the only money to which the Plaintiff's summons now relates is the $57,600.00 still retained by the District Court.

THE STATUTORY PROVISIONS

5. The Plaintiff's claim to the $57,600.00 is based on section 23(1) of the Crown Proceedings Ordinance (Cap. 300) (as it used to be called). That provides:

"Where any money is payable by the [Government of the Hong Kong Special Administrative Region] to some person who, under any order of any court, is liable to pay any money to any other person, and that other person would, if the money so payable by the [Government of the Hong Kong Special Administrative Region] were money payable by a subject, be entitled under rules of court to obtain an order for the attachment thereof as a debt due or accruing due, ... the [High] Court may ... make an order restraining the first-mentioned person from receiving that money and directing payment thereof to that other person ..."

6. The purpose of section 23(1) is plain. Garnishee proceedings are covered by Ord. 49 of the Rules of the High Court. However, Ord. 77 r. 15 provides that Ord. 49 does not apply to money payable by the Government of the Hong Kong Special Administrative Region. Accordingly, section 23(1) is intended to fill the gap where the garnishee is the Government of the Hong Kong Special Administrative Region.

Ord. 77 r. 16(3) applies Ord. 49 r. 6 to applications under section 23(1). Ord. 49 r. 6 provides:

"(1) If in garnishee proceedings it is brought to the notice of the Court that some other person than the judgment debtor is or claims to be entitled to the debt sought to be attached or has or claims to have a charge or lien upon it, the Court may order that person to attend before the Court and state the nature of his claim with particulars thereof.

(2) After hearing any person who attends before the Court in compliance with an order under paragraph (1), the Court may summarily determine the questions at issue between the claimants or make such other order as it thinks just ..."

THE NATURE OF THE CLAIMANTS' CLAIM

7. Two of the Defendant's relatives claim to be entitled to the $57,600.00 still retained by the District Court: Wendy Bouchlas (the Defendant's sister) and Clinton Steele (the Defendant's cousin). Those claims have been made in affidavits sworn by them. They claim that they provided the whole of the $120,000.00 which the Defendant deposited through his solicitors. However, the money they provided did not come from their own funds. Mrs. Bouchlas provided   £7,000.00, and that came from Avin International Corporation. Mr. Steele provided £3,000.00, and that came from a friend of his, Mr. D.J. Wakefield. Indeed, the £3,000.00 did not even come through Mr. Steele. Mr. Wakefield remitted the £3,000.00 to the Defendant's solicitors direct. Both Mrs. Bouchlas and Mr. Steele claim that the money was remitted to the Defendant's solicitors for the sole purpose of being used for the Defendant's cash bail. The Defendant was not to have access to the money at all, and they provided the funds on the basis that they would only be at risk of not getting it back if the Defendant did not surrender to his bail. They would not have provided the funds if they had known that the funds were capable of being attached by such creditors as the Defendant may have had.

8. The Plaintiff is not prepared to admit what the claimants claim. Mr. William Clarke for the Plaintiff pointed out that the receipts for the funds issued by the Defendant's solicitors described the funds as "money on account". That suggests that it was paid to the Defendant's solicitors on account of their fees rather than as funds to secure the Defendant's release on bail. He submitted that unless the Court dismisses the claimants' claim even if their contentions are true, the Court should exercise its power under Ord. 49 r. 6(1) and order the claimants to attend court so that they can be cross-examined on their affidavits.

9. I construe Ord. 49 r. 6(1) as giving the Court the power to order the claimants to attend court, but I do not construe it as imposing a duty on the Court to do so simply because there are questions of fact to be resolved. As it is, I do not propose to order the claimants to attend court. The practical realities are that the amount at stake is the comparatively small sum of $57,600.00, and Mrs. Bouchlas and Mr. Steele would have to come from Greece and the U.K. respectively. I bear in mind that they will not have been cross-examined on their affidavits, and that will affect the weight which I attach to their evidence.

10. Having said that, though, I propose to proceed on the basis that the funds were provided to secure the Defendant's release on bail, rather than for legal fees. Mr. Desmond Greenwood for the Defendant told me that the Defendant was legally aided. He therefore did not need funds from his relatives to pay for his legal representation. Moreover, a comparison of the dates of the receipts and the important dates in his attempts to secure bail show an obvious connection between the two. I also propose to proceed on the basis that the money was provided on the footing that the claimants would only be at risk of not getting the money back if the Defendant did not surrender to his bail. That is exactly what I would have expected of anyone who posts bail for someone else.

THE CLAIMANTS' ENTITLEMENT

11. Accordingly, the question is: on these facts, are the claimants entitled to the $57,600.00? Mr. Clarke argued that they are not. The true legal analysis is that Mrs. Bouchlas and Mr. Steele lent the sums of £7,000.00 and £3,000.00 to the Defendant (having themselves borrowed those sums from Avin International Corporation and Mr. Wakefield). Accordingly, it is said that the £10,000.00 became the Defendant's, and that the claimants have, at best, a claim against the Defendant for the repayment of the balance of their loan to him.

12. Difficult questions arise as to whether a particular transaction amounts in law to a loan: see Chitty on Contracts, Vol. 2, 27th ed., paras. 36-202-204. However, I do not need to decide whether the provision of the funds amounted to loans by the claimants to the Defendant. That is because I have concluded (subject to a public policy argument which I shall have to return to) that even if the provision of the funds amounted to loans by the claimants to the Defendant, the claimants are entitled to the $57,600.00. The relevant legal principle is stated in Halsbury's Laws of England, Vol. 48, 4th ed., para. 520, as follows:

"Special circumstances may ... create a constructive trust in the case of a ... person with whom the money ... of another is deposited. The same transaction may involve both a loan and a trust even though the concepts are mutually exclusive. Thus money may be lent on trust to pay dividends to shareholders, so that, if that purpose is performed, the borrower is liable only as a debtor to the lender; but, if the purpose is not performed, the money is to be held on trust for the lender": Barclays Bank Ltd. v. Quistclose Investments Ltd. [1970] AC 567.

13. In my view, similar considerations apply to money which is lent to a defendant to enable him to post cash bail on terms that the money is to be returned to the lender when the defendant's bail comes to an end. If the defendant fails to surrender to his bail, and the cash bail is forfeited, he is liable only as a debtor to the lender. However, if the defendant's bail comes to an end without the defendant having forfeited the cash bail, the defendant is entitled to the return of the money. Whether it is returned to him, or retained by the Court, it is being held on trust for the lender. Since that is what happened in this case, the claimants are, subject to public policy considerations, entitled to be paid the $57,600.00.

14. The public policy argument skilfully deployed by Mr. Clarke runs like this. It is well established that an agreement whereby a defendant advances money to his surety as a condition of his surety agreeing to be liable in that sum if the defendant does not comply with the terms of his release from custody is illegal: Herman v. Jeuchner (1885) 15 QBD 561. Brett M.R. said at p. 563:

"To my mind it is illegal, because it takes away the protection which the law affords for securing the good behaviour of the plaintiff. When a man is ordered to find bail, and a surety becomes responsible for him, the surety is bound at his peril to see that his principal obeys the order of the Court; ... but if money to the amount for which the surety is bound is deposited with him as an indemnity against any loss which he may sustain by reason of his principal's conduct, the surety has no interest in taking care that the condition of the recognisance is performed. Therefore the contract between the plaintiff and the defendant is tainted with illegality."

15. Mr. Clarke argued that just as the policy is that a surety must be personally at risk to lose his money, the policy must also be that the defendant is to be personally at risk to lose cash bail. Cash bail must be treated as belonging to the defendant so that it may be forfeited by him, and if he had to borrow it from another person he remains in debt to that person. Otherwise, the defendant has no incentive to respond to bail as he will personally lose nothing if he absconds.

16. I admire the ingenuity of this argument, but it does not take account of the fact that the posting of cash bail by a defendant with funds provided by others is a transaction which is both a loan and a trust. Thus, for the reasons I have given, if a defendant fails to surrender to his bail, the defendant is liable as a debtor to the lender. He will still have an incentive to respond to his bail. It is only if the defendant's bail comes to an end without the defendant having forfeited the cash bail that the sum deposited is repayable to the lender on the footing that it was held on trust for the lender.

CONCLUSION

17. For these reasons, the Plaintiff's summons must be dismissed, and the sum of $57,600.00 retained by the District Court is payable to the Defendant's solicitors for onward transmission to Mrs. Bouchlas and Mr. Steele. At present, I see no reason why costs should not follow the event, and I therefore make an order nisi that the Defendant's costs of and occasioned by the Plaintiff's summons be paid by the Plaintiff to the Defendant, to be taxed if not agreed. However, I also order that the Plaintiff may pay this sum by deducting it from the unsatisfied judgment debt in favour of the Plaintiff.