THE YERRID LAW FIRM v. QIANSBAIZI TRADING LTD AND ANOTHER

HCA 2271/2019

[2021] HKCFI 1578

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2271 OF 2019

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D E C I S I O N

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A.   INTRODUCTION

1.  In my decision dated 19 March 2021 ([2021] HKCFI 620) (“the Decision”), I dismissed D2’s appeal against the Master’s decision dated 14 October 2020 whereby she:

(a)  dismissed D2’s application to set aside the default judgment entered against D2 dated 20 January 2020 (“the Default Judgment”); and

(b)  ordered that the Garnishee Order to Show Cause dated 13 March 2020 be made absolute with costs of the garnishee proceedings to be retained by P out of the money recovered by P under the Garnishee Order Absolute and in priority to the judgment debt (“the Garnishee Order”).

I made an order accordingly (“the Order”).

2.  In respect of the Order concerning the Default Judgment, on 15 April 2021, D2 lodged a Notice of Appeal as of right pursuant to O.59, r.21(2)(h) in CACV170/2021.  On 16 April 2021, D2 filed a Notice of Setting Down on Appeal. On 29 April 2021, P filed a Respondent’s Notice.

3.  On the other hand, by a summons dated 15 April 2021 (“D2’s Summons”), D2 applies for, inter alia, the following orders:

(a)  a direction pursuant to O.59, r.21(3) that leave to appeal from the Order dismissing D2’s appeal against the Garnishee Order is not required by D2;

(b)  if leave is required for the Intended Appeal, leave be granted to D2 to appeal to the Court of Appeal on the grounds set out in the draft Notice of Appeal appended thereto;

(c)  D2’s time for applying for leave to appeal in relation to the Intended Appeal be extended to the date of this Summons; and

(d)  there by stay of execution of the Master’s decision dated 14 October 2020 including the Garnishee Order and the Default Judgment pending the determination of D2’s Notice of Appeal dated 15 April 2021 against the Order and the Decision, and the Intended Appeal (if any).

4.  The parties agreed that D2’s Summons shall be disposed on paper.  Pending the determination of D2’s Summons, I have granted an interim stay of execution of the Default Judgment (including the Garnishee Order).

B.   THE INTENDED APPEAL CONCERNING THE GARNISHEE ORDER

B1.    Whether leave to appeal is required

5.  Under O.59, r.21(3), “a direction as to whether a judgment or order is one that is referred to in paragraph 1(a) may be sought from the judge who made or will make the judgment or order”.  O.59, r.21(1)(a) provides an exception to the general requirement that leave to appeal is required for interlocutory appeals pursuant to s.14AA(1) of the High Court Ordinance; and the exception is “a judgment or order determining in a summary way the substantive rights of a party to an action”.  Hence, the issue is whether a garnishee order absolute is an order “determining in a summary way the substantive rights of a party to an action”.

6.  It is well established that, in Hong Kong, the applicable test for determining if a decision is interlocutory is the application approach (B + B Construction Ltd v Sun Alliance and London Insurance Plc (2000) 3 HKCFAR 503; Shell Hong Kong Ltd v Yeung Wai Man Kiu Yip Co Ltd (2003) 6 HKCFAR 222).

7.  D2 submits that the Garnishee Order is an order determining in a summary way the substantive rights of a party to an action because:

(a)  That order was founded on the same grounds as the order whereby the court dismissed D2’s application to set aside the Default Judgment, ie D2 had no arguable defence, which was a determination on the issue of merits;

(b)  The order affirmed the validity of the judgment debt and engaged the substantive rights of D2;

(c)  It also engaged the substantive rights of the garnishee in that by ordering the garnishee to discharge D2’s judgment debt on D2’s behalf, it reduced the credit in D2’s account with the garnishee, and consequently the debt owed by the garnishee to D2;

(d)  Where, as in this case, there is a composite application to set aside a default judgment and to resist a garnishee order absolute on the same substantive grounds, it makes little sense to subject the latter to a leave requirement where the former can be appealed as of right.

8.  I am not convinced by these arguments:

(a)  It is necessary to distinguish between a garnishee order and an order refusing to set aside a default judgment.  An order refusing to set aside a default judgment is deemed to be an order determining in a summary way the substantive rights of a party by O.59, r.21(2)(h).  There is no similar express deeming provision regarding a garnishee order.

(b)  It is wrong to say that the Garnishee Order affirmed the validity of the judgment and engaged the substantive rights of D2.  It is merely a precondition under O.49, r1(1) that, when applying for a garnishee order, the applicant “has obtained a judgment or order for the payment by some other person ... of a sum of money amounting in value to at least $1,000”.  In the garnishee proceedings, the court is only concerned with whether such a judgment or order has in fact been obtained.  The court is not concerned with the validity or correctness of such judgment or order; and the court will not consider the substantive rights of the parties in this regard.

(c)  The question is whether the order involves a determination of the substantive rights “of a party to the action”.  Under s.2 of the High Court Ordinance, “action” means “a civil proceeding commenced by a writ of summons or in such other manner as may be prescribed by any law”.  The garnishee is not a party to the action.  It is only a party to the garnishee proceedings, which is a procedural step to enforce the judgment obtained in the action.  Hence, the fact that the garnishee order may have an impact on the legal relationship between the judgment debtor and the garnishee is neither here or there.  Further, how a garnishee order may affect the legal relationship between the judgment debtor and the garnishee is prescribed by O.49, r.8, and does not require the court’s determination.

(d)  A judgment creditor may apply for a garnishee order based on a judgment obtained by him, and it does not matter how the judgment is obtained (eg after a full trial, a summary judgment or a default judgment). The fact that it so happened that the Garnishee Order in this case was made to enforce a default judgment is irrelevant to the issue of how a garnishee order should be characterised for the present purpose.

9.  P relies on the decision of DHCJ M K Liu in Transunion v Hong Kong Taijin Industry Limited and others [2021] HKCFI 484.  In §14 of the judgment, the learned Judge held that leave to appeal against the garnishee order absolute granted in that case was required:

“Counsel for Zall has accepted that the Decision is an interlocutory decision. I am of the view that the Decision does not have the effect of determining the substantive rights of P and Zall.

(1) On the jurisdiction ground, assuming that there is a ruling in favour of Zall, that would only mean that P may not enforce the judgment debts by way of garnishee proceedings against Zall in Hong Kong. However, that does not mean that P may not commence garnishee proceedings against Zall elsewhere, for example, in BVI.

(2) On the double jeopardy ground, assuming that the court is with Zall and refuses to make absolute the two Garnishee Orders Nisi, that does not mean that P may not commence garnishee proceedings against Zall again at a later time. Once the factor constituting the alleged double jeopardy disappears (ie, Cui’s alleged liability under the Personal Guarantees has been extinguished or has disappeared for some reason), P may re-apply for garnishee orders against Zall.

(3) Further, as to the double jeopardy ground put forward by Zall, I do not see how the substantive rights of Zall would be affected by the court’s ruling on this ground. Even if Zall’s argument is accepted, making the 2 garnishee orders nisi absolute would only affect Cui’s interest.  However, Cui is not a party in the garnishee proceedings.”

10.  D2 submits that that was a case where the garnishee itself opposed on procedural grounds without determination of any issue of merit; and is, therefore, distinguishable.  P points out that, in fact, the garnishee there raised substantive, rather than only procedural, grounds to oppose the garnishee order.  The learned Judge in Transunion apparently put on the focus on the arguments run by the garnishee in that case.  I am inclined to the view that whether a garnishee order absolute is an order “determining in a summary way the substantive rights of a party to an action” should be decided as a matter of principle based on the nature of the order irrespective of the facts or arguments in any particular case.

11.  In principle, I am of the opinion that a garnishee order does not determine in any way the “substantive rights of a party to an action”.  In Astro Nusantara International BV v PT Ayunda Prima Mitra [2016] 1 HKLRD 591 at 597, §9, Chow J drew a distinction between “procedural” and “substantive” rights.  Garnishee proceedings are a procedure to enforce a judgment whereby a judgment creditor may attach debts owed to the judgment debtors by others.  As mentioned, a judgment creditor may apply for a garnishee order only after he has obtained a judgment.  The substantive rights of the parties to an action (ie the judgment creditor and the judgment debtor) have already been determined by such a judgment. It must follow that no substantive rights of the parties to the action will be, or will need to be, determined in the garnishee proceedings.  In Fu Lok Man v Chief Bailiff of the High Court [2003] 3 HKLRD 275 at 278E-J, §5, Le Pichon JA cited the following judgment in Re Chinery (1883-84) LR 12 QBD 342 concerning the nature of a garnishee order absolute:

“… [“final judgment”] points to a liability of the debtor to the creditor being established in an action, and not to a proceeding of this kind, which is not an action, but a statutory proceeding, for the purpose, not of establishing any liability of the garnishee to the person who obtains the order, by of attaching a debt due by the garnishee to the debtor whose lability to the judgment creditor had been established by the judgment in the action.”

12.  For the above reasons, I conclude that, in respect of a garnishee order absolute, leave to appeal is required.

B2.    Whether leave to appeal should be granted out of time

13.  S.14AA(4) of the High Court Ordinance provides that leave to appeal shall not be granted unless the court is satisfied that either (a) “the appeal has a reasonable prospect of success”; or (b) “there is some other reason in the interests of justice why the appeal should be heard”.  D2 is seeking such leave out of time for 13 days. The applicable principles are set out in Competition Commission v W Hing Construction Co Ltd [2020] HKCT 6, §4.

14.  As to the meaning and scope of “there is some other reason in the interests of justice why the appeal should be heard”, Clarkes, Hong Kong Civil Court Practice (Desk Edition 2021), §59.2B.10 at p 957 provides that:

“Other examples of ‘some other reason’ to grant leave to appeal might include the following:

• Where the matter will be going to the Court of Appeal anyway, such as where there is an appeal (as of right) against a grant of Order 14 summary judgment in respect of part of a claim, and leave is sought to appeal the grant of leave to defend the balance of the claim.”

15.  This is a case where the matter will be going to the Court of Appeal anyway.  As mentioned, D2 has already lodged an appeal against the Order concerning the Default Judgment as of right in CACV170/2021. In fact, the grounds of appeal set out in the Notice of Appeal in CACV170/2021 are identical to the intended grounds of appeal in the draft Notice of Appeal attached to D2’s Summons.  If D2 succeeds in CACV170/2021, the Garnishee Order must be set aside.  In these peculiar circumstances, I take the view that “there is some other reason in the interests of justice why the appeal should be heard”.

16.  The parties have made detailed submissions on whether D2’s intended appeal has a reasonable prospect of success.  As I have already concluded that leave to appeal should be granted on the said ground, and the substantive merits of D2’s grounds of appeal will be considered by the Court of Appeal, I do not find it necessary or appropriate to express any view on the substantial merits of D2’s appeal.

17.  I will also extend the time for D2 to seek leave to appeal in these circumstances.  The length of delay is not substantial.  P has not suffered any prejudice because of such delay.  The delay was apparently caused by the uncertainty as to whether leave to appeal is required.  I note that D2 lodged the Notice of Appeal in CACV170/2021 within the time prescribed by the rules.  The most vital point is that it would make little sense to deprive D2 the chance of appealing against the Garnishee Order on the ground of delay when there is, to say the least, a possibility that D2 may succeed in its appeal against the Default Judgment, which should axiomatically lead to the setting aside of the Garnishee Order.

C.   STAY OF EXECUTION

18.  The applicable principles have been summarised by Ma J (as he then was) in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84, 87D-89I, which I need not repeat.

19.  China Citic Bank International Ltd is the garnishee.  By a letter dated 16 April 2021 to P’s solicitors, the bank informed P that it will hold off complying with the Garnishee Order pending P’s appeal against the Order and the Decision in CACV170/2021 until it is further advised by the court or by the parties’ solicitors.

20.  In the affirmation of Ye Xianghai filed in support of D2’s Summons, Mr Ye claimed that there is an appreciable risk that P would not be able to repay the monies from the Garnishee in the event of a successful appeal such that in the absence of a stay, the appeal may be rendered nugatory; this is because P is a law firm in the USA out of the jurisdiction of Hong Kong, and there is no suggestion that P has any assets within Hong Kong.  P has not filed any evidence in reply.

21.  In the circumstances, I have no difficulty in accepting D2’s submissions in this respect in the absence of any evidence to the contrary. On the evidence, if P is allowed to take the monies from the garnishee now, there will be a real risk that, if D2 succeeds in the appeal, it will have genuine difficulties in recovering them from P.  On the other hand, if the monies will remain in the hands of the garnishee in the meantime, in case D2’s appeal is unsuccessful, P should have little difficulty to enforce the Garnishee Order there and then.  I take the view that it is appropriate to grant a stay of execution.

D.   CONCLUSION

22.  For the above reasons, I order that:

(a)  The time to apply for leave to appeal against the Garnishee Order be extended to the date of D2’s Summons ie 15 April 2021;

(b)  Leave to appeal against the Garnishee Order be granted on the grounds set out in the draft Notice of Appeal appended to D2’s Summons;

(c)  There be a stay of execution of the Order pending the determination of CACV170/2021, and D2’s appeal against the Garnishee Order pursuant to the leave granted in paragraph (b) above;

(d)  Costs of D2’s Summons (including the costs of the interim stay) be costs in the cause of the appeal (with a certificate for two counsel).