Godfrey Christopher Rooke and Another v. HV Construction Services Ltd.

1997, No. 228
(Civil)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

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J U D G M E N T

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Rogers, J.A. :

1. This is an appeal from a judgment of Stock, J. handed down on 6th November 1997.

2. The situation briefly is that the Defendant company took investments from investors in Hong Kong for the purpose of investing in houses to be built in the United Kingdom. As has often happened before with construction companies, it appears that its finances are not entirely in order and the company is probably insolvent. There were a large number of investors in Hong Kong, approximately 60 or so, two of these were the Plaintiffs. The Plaintiffs had placed deposits totalling some £120,000 with the company and for some time they had been seeking a return of that money. Part of it had been repaid but the bulk had not. They reached the stage where their solicitors had written letters and proceedings had been commenced against the company. Then a series of meetings took place. These are all set out very fully in the judgment of the Judge below. The Plaintiffs having commenced their action proceeded to judgment and obtained a garnishee order which the Master made absolute. That was the subject of the appeal before the Judge below.

3. The situation was outlined by Stock, J. at p. 14 of his judgment where he said :-

"There is, in this case, in existence no winding-up petition, nor any resolution for the presentation of the petition, nor any resolution for the voluntary winding-up of the company, nor is there in existence an approved company voluntary arrangement. ..... Then there is an affidavit from a solicitor, Mr. Brown, who is one of the company's creditors who annexes to the affidavit a copy of a scheme of arrangement which he says the company is prepared to propose to the creditors (if so required by the court). That is a proposal, the implementation of which, let alone its acceptance by the creditors, cannot be assured."

4. There was dispute about what had been agreed at one of the meetings of the creditors of the company which was held on 28th April. The Judge held that at any rate the Plaintiffs had agreed not to present a winding-up petition against the company but it seems accepted that the Plaintiffs had not given an undertaking not to pursue their claim against the company.

5. There was a further meeting on 14th May 1997 which was not attended by the Plaintiffs but was attended by a large number of other creditors. At that meeting, Mr. Hayworth, who was the Managing Director of the company revealed that one of his former co-directors had tried to remove money from the company's accounts. As a result, he had placed the balances which the company had in the care of their solicitors for safe keeping. This information was conveyed to the Plaintiffs and the Plaintiffs used that information by launching the garnishee proceedings against the funds in the hands of the solicitors.

6. The Judge first reached the conclusion that there was nothing in law which prevented the garnishee proceedings from being made absolute. Against that finding, there is no appeal.

7. The Judge then dealt with the question of whether the information as to the existence of the funds in the solicitors' hands was confidential information. The Judge came to the conclusion as a matter of fact that this was not confidential information and there was no breach of any confidentiality by the Plaintiffs in making use of the information which had come to their knowledge.

8. The Judge then turned finally to a matter which he dealt with under the heading which he termed "The Equitable Approach". He said :

"But that is not, so it seems to me, the end of the case. The heart of the issue which I must tackle is whether it would be inequitable for me to grant the order, that is, to make the order absolute. Whilst the matter is not free of difficulty, I have concluded that it would be inequitable to do so. I am of the view that the nature of the information and the circumstances in which it came into the hands of the judgment creditors, in the context of the case as a whole, are such as should bite on the conscience of the judgment creditors."

9. Having initially come to the conclusion however that there was no breach of confidence, in my view, there were no equitable principle which would operate to preclude the Plaintiffs from using the information. Later in his judgment, the Judge made a specific finding that he saw nothing wrong if the Plaintiffs, who were judgment creditors, sought to enforce their judgment against other assets of the judgment debtor but it was only against the funds in the hands of the solicitors that he concluded that the Plaintiffs should be barred from taking proceedings.

10. In my view, the Judge in exercising the discretion that lies in the Court not to make a garnishee order absolute took into account matters which should not have been taken into account and sought to extend in some way the obligation of confidence in circumstances where it did not exist.

11. For those reasons, I consider that it is open to this Court to review the exercise of discretion and, in my view, the garnishee order should be made absolute and the order of the Master should be restored.

Godfrey, J.A. :

12. It is a matter within the discretion of the court whether or not to make absolute a garnishee order nisi. There are no general principles laid down upon which the discretion falls to be exercised. Cotton, L.J. in Roberts v. Death, (1881) 8 Q.B.D. 319 says, at p.324 :

"I am of opinion that whenever the judge is informed on any reasonable ground that such an order ought not to be made, he should withhold making the garnishee order absolute for taking the money of one person to pay the debt due from another."

13. So the question is whether there is any "reasonable ground" why the order should not be made. Certainly, "in considering whether or not to exercise its discretion to make absolute a garnishee order, the court must bear in mind not only the position of the judgment creditor, the judgment debtor and the garnishee, but also the position of the other creditors of the judgment debtor; and have regard to the fact that proceedings are on foot for enforcing the distribution of the available assets of the judgment debtor among the creditors pari passu" : see D. Wilson (Birmingham) Ltd v. Metropolitan Property Developments Ltd. [1975] 2 All E.R. 814, per Buckley, L.J. at p. 819. (Emphasis added.)

14. So, as Hunter, J. pointed out in the local case of Wardley Ltd v. Aik San Realty Ltd, 18 December 1984, unreported :

"..... if the Court has a choice between allowing a particular creditor to obtain a preference or ensuring a pari passu distribution of a debtor's total assets amongst his creditors, it will opt for the latter and equality. But in the case of a corporate debtor no choice arises unless a pari passu distribution will follow from a refusal to make a Charging Order absolute i.e. because winding-up proceedings have already been commenced or perhaps because their equivalent in the form of some scheme of arrangement is imminent. Unless these circumstances exist the above choice is not available to the Court."

15. In the present case, the judge thought there was one ground on which he should refuse to uphold the decision of the master to make absolute the garnishee order nisi.

16. The judge considered that, in the circumstances in which the judgment creditors had obtained the information which enabled them to garnish the funds in the hands of the solicitors here, it would be inequitable to allow them to retain the benefit of their garnishee order nisi.

17. In my judgment, the judge was not justified in coming to this conclusion. He took the view, apparently, that the judgment creditors were entitled to apply for a garnishee order nisi against the assets of the judgment debtor; but not against what he called "these particular assets". But he had already decided that there had been no misuse by the judgment creditors of any confidential information. His decision is inconsistent with this finding. There was nothing here (though the judge thought otherwise) "to bite on the conscience of the judgment creditors".

18. Like Rogers, J.A., I think we are entitled, and bound, in these circumstances, to review the judge's exercise of his discretion. For my part, I can see no good reason for holding that in all the circumstances related by Rogers, J.A., there is some "reasonable ground" on which the judgment creditors here should be deprived of the benefit of their garnishee order.

19. Accordingly, I too would allow this appeal.

Mortimer, V.-P.:

20. For the reasons which have been advanced, I also would allow this appeal.

21. In those circumstances the appeal is allowed and the garnishee order absolute made by Master To on 17 June 1997 is restored.

22. The plaintiffs will have their costs here and below. For the sake of clarity those include the costs of the application before Stone J on 24 November 1997.

23. The plaintiffs will also have the costs of two applications before the same judge for a stay of the payment of ￡90,000 made on 23 July 1997 and 28 July 1997.

24. We also order that the monies presently in court be paid out without further application to the plaintiffs' solicitors.