EUROPEAN ASIAN BANK v. WO PING CHING t/a THE STANDARD CIVIL ENGINEERING CO. AND OTHERS

1985 No. A1273

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is an appeal against two decisions of Master Emerson given on 30th July 1986. The facts are unusual and are as follows.

2. Wo Ping Ching is a builder who trades under the name of The Standard Civil Engineering Co.  I shall call him Standard. He entered into three contracts with Hong Kong Government namely, No. 151 of 1978: No. 811 of 1979 : and No. 251 of 1982. He ran into cash flow problems with each and borrowed money from two different sources.

3. The first source was a company named Lap Yip. By way of security for this borrowing, Standard drew four cheques each for $100,000.00. Lap Yip discounted these to the present applicants, European Asian Bank (the Bank). The cheques were dishonoured on presentation with the result that on 24th July 1985 the bank obtained judgment against Standard for $400,000.00 plus interest. That is the judgment the Bank seeks to enforce.

4. The second source of borrowing was Superwealth Investment Company Limited. There were two phases to this borrowing, which resulted in two assignments namely:-

5. This arbitration terminated in January 1986 with an award (in round figures) of $483,000.00 in favour of Standard.  After further proceedings, on 30th June last, the Court of Appeal gave leave for judgment to be entered in Standard's favour against the Attorney General in the terms of the award.

6. In these circumstances, both the bank and Superwealth have moved against this fund, this new judgment debt. The bank applied for the equivalent of a garnishee order, an order under 077 r.16(2), restraining the Attorney General from paying and Standard from receiving such proportion of the judgment on the award as was sufficient to discharge the Bank's judgment debt. Superwealth counter-attacked by seeking leave to intervene in the proceedings, and the dismissal of the Bank's application. Master Emerson dismissed the Bank's application and granted that of Superwealth. The Bank now appeals.

7. The sole point argued by the Bank before both the Master and myself was that the two assignments by Standard to Superwealth were rendered void by the following provision which appears in both construction contracts:

"3.         The contractor shall not assign the contract or any benefit or interest therein without the written consent of the Director and any assignment shall be in a form approved by the Director. "

It is common ground that the consent of the Director to neither assignment was obtained. Further when notice of both assignments was given to Government, this point was taken by Government and the effectiveness of the assignments denied.

8. For the appellant bank, Mr. Leong relies upon the decision of Croom-Johnson J. (as he then was) in Helstan Securities Ltd. v. Hertfordshire County Council⁽¹⁾. This he submits, shows that an assignment made in breach of an express contractual provision is invalid. He seeks to go further and suggested that it is void for all purposes. This authority he submits precisely covers the purported assignment of the contractual rights. By analogy and extension, he argues that it also covers the purported assignment of the product of the arbitration. This arbitration stemed from the contract and from the arbitration clause it must have contained. The award was a determination of contractual rights : an ascertainment of Standard's benefits under and interests in this contract.

9. This argument was adopted and supported by Mr. Logan for the Attorney General. He also advanced a late claim by Government to set off against the material judgment, another judgment in favour of Government against Standard dated 15th April 1985 for just over $85,000.00 arising out of a land claim. This earlier judgment had previously been overlooked, and he was warning all parties of Government's intention to assert a right of set-off. But it is not necessary, and I was not invited to adjudicate upon this, and do not do so.

10. For Superwealth, Mr. Smith sought to distinguish the decision in Helstan⁽¹⁾ on two grounds. First in that case the prohibition against assignment contained the words : "shall not assign the contract or any part thereof or any benefit or interest therein or thereunder". The underlined words, he submitted were decisive and made all the difference. They were the foundation of the judge's conclusion : "It is the contract which creates the entitlement to be paid, and that is a benefit or interest under the contract", p. 266(a). I have considerable doubts as to whether this distinction is valid, but it is not necessary to decide the point. I shall proceed upon the basis that Mr. Smith is wrong, because I find the second string to his argument much more persuasive.

11. That is that the assignment of the product of the arbitration in the second limb of the assignment of 8th December 1983, is not caught by the contractual prohibition and is valid in any event. I think it is probably right that because the contractual rights existed but had not been adjudicated upon or quantified at the date of this assignment, that it should be regarded as an assignment of future property, and therefore as one which could take effect only in equity as an agreement to assign : Glee v. Bromley⁽²⁾; and Chitty on Contracts 25th edn. paragraph 1283. On this view the agreement took effect and "bit" first on the award and then upon the judgment. It is note worthy that at the same time what Croom-Johnson J. regarded as the background justification for this type of contractual provision ceased to have effect. A final award should, . prima facie, resolve all problems, claims and cross-claims arising under the contract. The justification for the clause was to enable Government to deal with all these matters throughout with one person alone.

12. As the Court of Appeal's order shows an arbitral award can readily be converted into a judgment. When this happened, all antecedent contractual rights and remedies merged in this judgment and ceased to have separate existence, Chitty paragraph 1647. In Lord Blackburn's words in Kendall v. Hamilton ⁽³⁾:

"... that cause of action was gone. Transivit in rem judicatam. "

I therefore think that Mr. Smith is right in saying that this clause did not survive this process of mutation or bring about a judgment debt that almost uniquely was unassignable. I think that the prima facie effect of this judgment was to create a debt in the hands of Standard, which, but for the antecedent events, it could have enforced or assigned as it wished. c.p. Holtby v. Hodgson⁽⁴⁾. But those very antecedent events prevented Standard from honestly dealing with these moneys otherwise than by paying them to Superwealth, and accordingly this debt is not attachable in Standard's hands : Holt v. Heatherfield Trust Limited⁽⁵⁾.

13. Accordingly in my judgment this appeal fails and must be dismissed.

(1) [1978] 3 All E.R. 262

(2) [1912] 3 K.B. 474

(3) [1879] 4 App. Cas. 504, 542

(4) [1889] 24 Q.B.D. 103

(5) [1842] 2 K.B. 1