FERRYHILL INTERNATIONAL LTD v. MAHMOUD AZIZ

Civil Appeal No. 197 of 1996

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H E A D N O T E

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Civil Procedure. O49B. Imprisonment of judgment debtor under r1B(c) for wilful failure to make full disclosure at examination under r1A(2).

Appeal allowed as the discretion to imprison was based upon a finding that the judgment debtor was able to satisfy the judgment wholly - a finding that was unsustainable on the evidence.

Finding of wilful failure to make full disclosure upheld but Court of Appeal declined to exercise itself the discretion to imprison in the particular circumstances.

Per curiam: Disclosure should have been more effectively pursued before the findings were made.

IN THE COURT OF APPEAL

1996, No. 197
(Civil)

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J U D G M E N T

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Nazareth V-P:

1. This is an appeal by the judgment debtor against the judgment and order of Master Cannon given in the context of proceedings to enforce in Hong Kong judgment obtained in London by the judgment creditor ("Ferryhill"). The judgment was in respect of a promissory note given by the judgment debtor for about US$1 million, which with costs and interest resulted in a judgment debt of some US$1.2 million.

2. For the purpose of the appeal, the facts need only be stated within a fairly narrow compass. On 13th October 1995, Ferryhill applied and obtained an order for the oral examination of the debtor under O49B r1. The examination took place under O49B r1A on 14th March 1996 and 8th and 9th August 1996. On 23rd August and 2nd September Master Cannon adjudged that the judgment debtor -

(i) was able to satisfy the judgment wholly and

(ii) had wilfully failed to make a full disclosure under r1A(2).

She ordered that the judgment debtor be imprisoned for 6 weeks, with a stay of 6 weeks pending appeal, which period was subsequently extended pending determination of this appeal.

3. Pursuing the judgment debtor's several amended perfected grounds of appeal, Mr Adrian Huggins, who did not appear below, but with Mr Anthony Ismail appears for the judgment debtor before us, challenges the two primary findings to which I have referred, which were made by the master.

4. Before addressing Mr Huggins's submissions, it is convenient to outline the provisions of the Rules of the Supreme Court mainly in point:

"Order 49B

(HK) Execution and Enforcement of Judgment for Money by Imprisonment

1. Securing attendance at examination

(1) Where a judgment for the payment of a specified sum of money is, wholly or partly, unsatisfied, the Court, on an ex parte application of the judgment creditor, may order that the judgment debtor be examined under rule 1A and shall, for the purpose of securing the attendance of the judgment debtor at an examination under rule 1A either-

(a) order the judgment debtor, by an order which shall be served personally upon him, to appear before the Court at a time appointed by the Court, with such documents or records as the Court may specify; or

(b) ...

1A. Examination of debtor

(1) Upon appearance of the judgment debtor for examination, he shall give evidence and he may be examined on oath by the judgment creditor and the Court; and the Court may receive such other evidence as it thinks fit.

(2) The judgment debtor shall, at his examination, make a full disclosure of all his assets, liabilities, income and expenditure and of the disposal of any assets or income and shall, subject to the directions of the Court, answer all questions put to him.

(3) ...

1B. Power of the Court following examination

(1) Where the Court is satisfied, following the examination conducted under rule 1A ... that the judgment debtor -

(a) is able to satisfy the judgment, wholly or partly; or

(b) ... or

(c) has wilfully failed to make a full disclosure as required under rule 1A(2) ... or to answer any question as provided under that rule ..., it may, in its discretion, order the imprisonment of the judgment debtor for a period not exceeding 3 months.

(2) ..."

5. The judgment debtor's evidence was that he was a Canadian citizen and led a frugal life with his living coming from two sources. First, his honorary appointment in the nature of charitable work, as one of the external relations directors of an Indian charitable organisation called AID (Association for Islamic Development). This involved him operating partly out of Hong Kong and travelling very extensively for fund raising purposes with travelling and living expenses being reimbursed by AID in cash. His only other source of money was that he got out of his own business activities which he carried out during his travels in the 30% or so spare-time he had from his AID work. His business activities were carried out largely in the context of his appointment as a director of the Fazio Group of Companies. These were Hong Kong companies owned by one Mr Hameed from whom he took over in Hong Kong before the former left for Madras in India. Mr Hameed was also the principal benefactor of AID. The judgment debtor received from his business activities, he said, some C$13,000 to $15,000 per annum. That in short was the effect of his evidence. Such documentation as was produced showed very extensive travel indeed, and reimbursement on a scale and of a nature that was perhaps a little surprising for a charity. All the reimbursement from AID, as provided in his contract with AID, was made in cash, again one must observe, somewhat surprisingly.

6. As to his own business activities, he was permitted under his contract and arrangements with AID to use his spare-time and the Fazio office premises for conducting his own business. The indications from the judgment debtor's evidence and from what little documentary evidence there was, pointed to his being a cigarette trader and supplier on a very large scale. He was associated with the second largest cigarette manufacturer in China. Indeed, it was said with respect to one transaction in Russia that the profit was to be US$1 million. He claimed that Ferryhill defaulted in their contracts with him thereby causing him to lose two business contacts who would have given him millions of dollars of business. He was also involved in the business of deer horns and cooking oil in Russia. That then was the background.

7. Reverting then to Mr Huggins's first primary challenge, in giving her reasons the Master began with the judgment debtor's credibility saying this:

"I did not find the Judgment Debtor to be a credible witness. He was evasive and rarely answered questions put to him in a direct manner, frequently hedging his answers with qualification and indeed obfuscation.

His demeanour was that of a businessman of some sophistication and experience in handling the court setting who had decided to evade payment of this debt."

8. Mr Huggins sought to have this finding of credibility put to one side, largely upon the basis of the format of the judgment and the separate heading of the issue of credibility. However, plainly the Master's finding on credibility, with the advantage she had of seeing and hearing the judgment debtor, cannot be and was not faulted before us.

9. Proceeding then to the issue of the judgment debtor's ability to satisfy the judgment debt, the Master referred to commissions from the Fazio Group and from the sale of cooking oil to Russia which the judgment debtor said were not large, pointing to selective production of documents in support and non-production of the complete Fazio Group documentation. She turned then to address the non-production of documents, which Mr Huggins criticised as confusion between that and the judgment debtor's ability to pay, but which seems to me to be understandable as bearing upon the available evidence of the judgment debtor's income and resources from which his ability to pay could be determined.

10. Reverting to the judgment debtor's ability to satisfy the judgment debt, the Master referred to the points made by Ferryhill in the following passage:

"(b) The judgment creditor noted the judgment debtor's ability to obtain funds when he needs them. AID pays for his lavish life style. King Venture is one of Mr Hameed's companies, and the judgment debtor's guarantee to Ferryhill was on King Venture paper, with Mr Hameed being closely interested in the transaction. Mr Hameed was willing to waive the substantial profit on the second transaction to enable the judgment debtor to discharge the guarantee given to Ferryhill. Clearly, there is a mutually beneficial commercial relationship between the judgment debtor and Mr Hameed".

She concluded:

"(c) Having considered the evidence of the examination as a whole and in particular these two areas of the examination, I am satisfied that the judgment debtor has a substantial trading income in his own right and additionally has access to income through his connection with Mr Hameed and Mr Hameed's companies, and that consequently he has sufficient assets with which to satisfy the judgment debt."

11. However, while the evidence points to the opportunity and potential for substantial trading income, there is no actual evidence of the amount of any such income actually received. As to the additional access to income through the judgment debtor's connection with Mr Hameed and the latter's companies, the only evidence that is available is the judgment debtor's own evidence that he received a total of C$13-15,000 per annum. In the absence of any evidence of savings that had accumulated or any other assets, income of this order even taken in conjunction with living expenses being largely met out of AID reimbursement, cannot begin to approach the amount that would be required to satisfy the judgment debt. Mr Whitehead acknowledged that he was in difficulty in supporting the Master's first finding, but before moving to concentrate his submissions upon the second finding urged us to consider the first issue in the light of the following matters of which he submitted there was positive evidence:

(a) that the debtor had a trading income in his own right and access to income through his connections with Mr Hameed and the latter's companies;

(b) that he was involved in transactions in deer horn and cooking oil;

(c) that he was in his own words a "reliable and trusted cigarette supplier" who was involved in tobacco transactions worth several millions of dollars. Furthermore that the judgment debtor was involved with a group which had the second biggest cigarette factory in China from which he earned commissions;

(d) that the debtor travelled the world (as demonstrated by his passport endorsements) on what he claimed to be business for AID and during that also carried on his own business;

(e) that he signed a promissory note for an amount in excess of US$1 million which must carry the implication that the payees were satisfied that he had the capacity to meet it.

These factors and considerations, Mr Whitehead submitted, had to be considered against the background of the Master's finding that not only was the judgment debtor not credible but also evasive; moreover that he had wilfully failed to disclose his assets. In regard to wilful failure to disclose assets, it was contended in Mr Whitehead's written submissions that the logical and proper inference is that he has assets with which to satisfy the debts but does not want to disclose those assets because he does not want to pay up. He rightly did not pursue that contention before us, for if it can ever be right, it is certainly not so in the present circumstances. However that may be, even viewed in the way invited, I cannot see that the evidence comes anywhere near to establishing an ability to pay the entire amount of the judgment debt. True there are good grounds for suspicion, and even possibly a conclusion that the judgment debtor must have the ability to pay some small proportion of the judgment debt, but they simply do not warrant anything beyond that. Clearly the finding that the judgment debtor is able to satisfy the judgment wholly cannot be supported on the evidence.

12. But that does not dispose of the appeal, for the second finding, i.e. that the judgment debtor wilfully failed to make full disclosure as required by r1A(2), if proper, could sustain the sentence of imprisonment under r1B(1)(c) which is alternative to r1B(1)(a). Turning then to the second finding, in her reasons the Master referred to the judgment debtor's evidence of being a charitable worker, to the donations receipts arrangement and to expense payments being mostly verbal with practically no documentary evidence, notwithstanding substantial donations and expenses. Some reasonably detailed records she observed were to be expected, as also tax records by a charity. She continued:

"... I do not accept that the evidence of this unconventional manner of operating a charity has the ring of truth.

The judgment debtor has produced documents in a reluctant and piecemeal manner. He has not shown himself to be diligent in obtaining documents from Canada, where his mother and sister could easily have obtained access to his papers. He has not produced documents relating to Fazio, although he is a director, and he produced what can only be described as a lame letter from Mr Hameed as to why Fazio documents could not be produced, and then at the last moment offered the Fazio accounts for sighting by Master but not by the judgment creditor.

Again, having considered the evidence of the examination as a whole, and with particular reference to the matters I mention here, I am satisfied that the judgment debtor has wilfully failed to make a full disclosure as required under rule 1A(2)."

13. That second finding, as submitted by Mr Huggins, does not specify what precisely was not disclosed. Upon the plain wording of r1A(2), this must be the "full disclosure of all his assets, liabilities, income and expenditure and of the disposal of any assets or income"; in the particular circumstances before us, it would be income and expenditure that would have been particularly in point and undoubtedly so understood by the applicant.

14. Mr Huggins in the context of the Master's emphasis upon documents and documentary evidence, submitted rightly that the production of documents had to be ordered under O49B r1(1)(a) and that failure to comply would attract not the imprisonment provided for by r1B(1) but the ordinary sanctions for breach of a court order including committal. Be that as it may, the range of documents that the debtor was so ordered to produce included items that if produced would clearly have provided significant information bearing upon income and expenditure, even if not very specifically described. That said, I do not find it necessary to concern myself further with the point, for the question is whether there was wilful failure to disclose the matters mentioned in r1A(2), and not specific documents, save possibly insofar as they would or did constitute disclosure of those matters.

15. Was, then, the Master right in concluding that judgment debtor had wilfully failed to make a full disclosure of the matters in r1A(2)?

16. Her findings that his evidence was not credible and that he was evasive have not been faulted. His own description of his working arrangements with AID, although largely confirmed by his contract of employment supplied by Mr Hameed, the scale of his travelling and nature of the expenses reimbursed, his unusual situation in the Fazio Group, the relationship of the latter with regard to AID, and passing revelations of profit-making trading potential and opportunities, cumulatively raise strong suspicions and numerous questions that cry out for information. That situation is exacerbated by the five factors relied upon by Mr Whitehead not only in relation to the Master's first finding but also to her second finding.

17. While these matters may raise questions as to why disclosure was not more effectively pursued before the findings were made (which, to a degree, can in hindsight, plainly be seen to be the course that should have been taken) it seems to me that the conclusion that the judgment debtor had failed to make full disclosure was one that not only the Master was entitled to make, but the obvious and natural finding and that there are no grounds for upsetting it. I would add that in the circumstances it seems to me difficult, to say the least, to escape the conclusion that the judgment debtor must have had much more information about the various matters I have just mentioned. For reasons that will become apparent it is not necessary to take that view further.

18. That brings me to the Master's order of imprisonment in the exercise of her discretion. Her reasons in that respect extended to two pages and their entire reproduction here is not warranted. It suffices to say first, that her discretion to sentence the debtor to 6 weeks imprisonment was exercised almost entirely upon her first finding, i.e. that the judgment debtor was able to satisfy the judgment wholly. Having addressed the question whether it would be oppressive to order imprisonment she distinguished Honour Finance Co Ltd v Cha Mang, Civil Appeal No 63 of 1989, unreported, and continued:

"On the evidence before me I am satisfied that Mr Aziz had substantial tangible assets before judgment and that he has substantial tangible assets at the present time. I am satisfied that this is a proper case to grant relief to the judgment creditor under O49B. I found the judgment debtor to be evasive under examination, and I am satisfied that it is not wrong or oppressive in the light of the evidence before me to order the imprisonment of the judgment debtor."

19. In the light of my conclusion that the Master's finding cannot be supported, the basis upon which the Master exercised her discretion collapses and vitiates the exercise of her discretion and the sentence upon which it was imposed. Mr Whitehead readily recognised that and submitted that this Court should in the circumstances itself exercise the discretion and impose the same sentence.

20. Second, the Master referred to the submission of counsel for the debtor below:

"... that the judgment debtor would pay the debt if he could; that the main purpose of Order 49B is to enforce payment of a judgment debt and that the penal aspects are comparatively minor; that if an order for imprisonment is not likely to result in the settlement of the judgment debt or part, notwithstanding that the Court is satisfied that the judgment debtor is able to satisfy the debt, such order should not be made; and that it would be a vain exercise and purely punitive. I do not accept these submissions. The discretion of imprison is indeed punitive. ..."

It is not entirely clear what the Master meant when she said the discretion to imprison is indeed punitive. The discretion could hardly have been rightly exercised if the failure to pay was the result of inability to do so. Yet, the possibility that the Master exercised her discretion to sentence the debtor to 6 weeks imprisonment because of his failure to pay albeit caused by inability cannot be excluded, and that is a basis upon which the exercise would clearly have been wrong.

21. As to whether this Court should now exercise the discretion, plainly we are not as well placed as the Master properly directed would be. Moreover, the judgment debtor has now been prevented from leaving Hong Kong by a prohibition order made under O49B r1(2) for the last 6 months. Although he was warned by the Master on 14th March 1995 of the sanction of imprisonment under r1B if he did not make full disclosure, I am not satisfied that the focus upon this was not lost by the time of the further hearing of the matter in August 1995, some five months later when he was given time to pay up. In all the circumstances I am not persuaded by the material before this Court that our discretion should be exercised to re-impose the sentence of 6 months or indeed any lesser sentence. Nor do I consider myself sufficiently apprised of the circumstances of this matter in particular the nature of the debtor's default, to exercise the discretion in that way.

22. In the result I would allow the appeal and set aside the sentence of imprisonment. I would also extend the prohibition order until 14th April 1997. As to costs, I would hear the parties, for which purpose I would direct that the matter be re-listed.

Bokhary JA:

23. I agree that this appeal should be allowed so as to set aside the sentence of imprisonment.

24. The reasons given by my Lord point clearly to that being the right result. Had it been necessary to do so, I might have given some additional reasons of my own. But this is not necessary. Nor do I consider it desirable.

25. I also agree with my Lord as to the extension of the prohibition order and as to the need to hear the parties on costs.

Ching JA:

26. I also agree.