KWAN WAI CHONG v. BONNY GLORY INVESTMENT LTD AND OTHERS

1987, No. A2918

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is an interpleader application taken out by the Chief Bailiff. It was originally heard by Master Hill and he ordered that the goods and chattels which had been seized under a writ of fi fa must be returned to the Garnishee. The Plaintiff is appealing against that order.

2. The Plaintiff obtained a default judgment against the Defendant on the 8th June 1987 in the sum of $200,000 plus interest.

3. He then commenced Garnishee proceedings against the Garnishee. He obtained a Garnishee order nisi on the 29th September 1987 and an order absolute on the 12th November 1987.

4. Between the making of the order nisi and the order absolute, the Defendant and the Garnishee entered into a written memorandum of agreement which purported to extend the date for the repayment of the debt due from the Garnishee to the Defendant.

5. Subsequent to the order being made absolute, the Plaintiff issued a writ of fi fa against the Garnishee.

6. Before the Chief Bailiff was able to execute the said writ, the Defendants' solicitors wrote to the Chief Bailiff informing him that the goods subject to the proposed seizure had been charged in favour of the Defendant by a legal charge dated the 20th November 1987. It will be appreciated that the date of this charge was subsequent to the making of the Garnishee order absolute.

7. At first sight this would appear to be an outrageous situation. However I do not think that this is necessarily the case.

8. A considerable volumn of affidavit evidence has been filed and it is evident that a number of parties, including the Plaintiff had attempted to enter into some form of scheme or arrangement, the purpose of which was to provide for the situation which may arise if the Defendant encountered financial difficulties.

9. Both parties put a different interpretation upon the objects which it was intended should be achieved by this scheme.

10. Mr. Thong for the Plaintiffs contended that although it was irrelevant for the purpose of this application to consider the scheme, its purpose was designed to protect the five parties to the scheme from claims which may be made by other creditors of the Defendant.

11. The five parties to the scheme were effectively supporting the Defendant financially.

12. Mr. Mok for the Defendants, however, submitted that the purpose of the scheme was to regulate the rights and liabilities of the five parties among themselves and one purpose was to preclude any of the participants from acting in the manner of the Plaintiffs.

13. I do not think that it is necessary for me to enter into a consideration of the scheme or the legal consequences arising therefrom. It is, however, of some relevance because for the reasons I will be giving it may be relevant to a consideration as to whether the Defendants have been acting in good faith.

14. Indeed Mr. Thong argued that I was precluded from considering the scheme at this juncture. The reason he gave for this was that the Plaintiffs had obtained a default judgment. Had the Defendants wished to place any reliance upon the scheme, the right time for them to ventilate the issue was before judgment had been entered. I can see some merit in this contention.

15. Mr. Mok submitted that the main issue I should consider was the effect of the Plaintiff obtaining a Garnishee order absolute.

16. Order 49 rule 4 sub rule 2 provides:

"2.    An order absolute under rule 1 against the Garnishee may be enforced in the same manner as any other order for the payment of money".

17. There is nothing whatever in this rule to indicate that any particular rights are conferred upon a Plaintiff in any way analogous to the legal situation which arises when a judgment creditor obtains a charging order. By this I mean that he does not by virtue of the Garnishee order absolute obtain any sort of priority in respect of the assets of the Garnishee. The legal position arising in such situation was considered by Lord Alverstone at p.663 in Geisse v. Taylor & Hartland⁽¹⁾.

"What, on the authorities, is the position of a person who has obtained a garnishee order? In this Court it cannot be said that he resembles an ordinary creditor or a judgment creditor. The Court of Appeal, in In re Combined Weighing and Advertising Machine Co., decided that a garnishee order cannot be made the ground for a petition to wind up a company; and, in Ex parte Chinery, that a bankruptcy notice cannot be founded upon it. Those decisions, therefore, seem to show that the garnishor is not in the same position as an ordinary creditor to whom money is owed by his debtor, and indicate that in stating the duty of a garnishee it is not the true view that he cannot enter into and carry out subsequent transactions which are good as against the garnishor. It is true that in Ex parte Joselyne James L.J. said: "The moment the order of attachment was served on the garnishee the property in the debt due from him was absolutely transferred from the judgment debtor to the judgment creditor"; but that must be taken in conjunction with that which Cotton L.J. said in the same case - that as against the judgment debtor the garnishee order nisi was a final and complete order transferring at once "the right to receive any money which might be due" from the garnishee to the judgment debtor. In Rogers v. Whiteley Lord Halsbury L.C. said: "It is enough for me to say in reference to this case that the order as it is made, in the terms in which it is made, attaches all debts, that is to say all money which Mr. Whiteley could be called upon to pay away although more than the amount sufficient to satisfy the particular debt in question". The position of the garnishor in respect of the garnishee is different from that of an ordinary creditor or judgment creditor. The provisions of Order XLV., r.3, enable him to obtain the issue of execution in aid of his rights under the garnishee order; execution is only a mode of enforcing the duty which the garnishee owes to the garnishor under the order. If I am right, the act of the garnishees here in obtaining, in their own interest and bona fide, an advance upon the debenture was valid and effectual, and the garnishor could not give himself priority by the issue of his writ of fi. fa. Unless the decisions establish that a garnishor is in a better position than an ordinary creditor, I cannot say that the garnishee's hands are so tied that he cannot deal with his assets, even though those assets might in certain events be made available for the payment of the garnished debt. Mr. Bankes' argument seems to concede that in order to succeed he must put the garnishor in a better position. I am of opinion that it is impossible to put the claim of the garnisher in a higher position than the debt of an ordinary judgment creditor, and that, I think, was the ground of the learned county court judge's judgment. I desire to add that, in my opinion, Mr. Bankes was right in his criticism of that part of the judgment which deals with the effect of the Bankruptcy Act, 1883".

Kennedy J. and Jelf J. were of a similar view.

18. I am also satisfied that Lord Alverstone has correctly stated the law. It will be noted from this that the bona fides of the Garnishee is a relevant consideration.

19. In this connection it is worth observing that when this application was before Master Hill, the Plaintiff conceded that the actions of the Garnishee and the Defendant in converting the Debenture into a fixed charge were not done with the intention of defeating the judgment debtors claim.

20. Mr. Thong informs me that he no. longer makes this concession. I am satisfied that Khan v. Goleccha International Ltd.⁽²⁾ is authority for the proposition that once such a concession has been made the party making it is unable to withdraw it as it amounts to issue estoppel.

21. The main complaint made by Mr. Thong is that the present situation can be readily distinguished from Geisse v. Taylor as the judgment debtor and the claimant are one and the same person. Obviously this may be a relevant consideration in determining whether the transaction was bona fides. However once the question of the bona fides of the Defendant and the Garnishee is resolved in their favour I do not think that the common interests of the parties is a matter of importance.

22. I am of the opinion that Mr. Mok is right in his contention that the Court should confine itself to the issue of the scope of Garnishee proceedings and the effect of making Garnishee orders. If that approach is adopted I have no hesitation in coming to the conclusion that Master Hill was right in making the order he did. This being a case this appeal will be dismissed. I will hear the parties on costs.

(1)    [1905] 2 KB 658

(2)    [1980] 2 All ER page 259