WARDLEY LTD AND OTHERS v. AIK SAN REALTY LTD AND ANOTHER

                Held dismissing appeal against grant of Charging and Garnishee Orders: -

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The appellant defendants are property companies which have been in financial difficulty for some two years. The Plaintiffs were members of a banking consortium which financed the defendants at one time. The defendants defaulted and on 21st May 1984 the plaintiffs obtained judgment against each defendant for $46,996,821.29 with interest and costs. These judgments remained unsatisfied.

2. The defendants were members of a group which formed a company called Green Palm Estates Ltd. (Green Palm) to carry through a particular development project. Each defendant owns $3,187,500 shares in that company (the shares). These shares are charged to a banking consortium headed by the Bank of Tokyo which financed this development. The current loan agreement is dated 5th July 1983 and is supported by a Debenture and a Charge bearing the same date. There is evidence before the court suggesting that these shares have an appreciable residual value.

3. Green Palm was financed in part by loans from its shareholders. A Green Palm balance sheet at 30th June 1982 shows an indebtedness to shareholders of nearly $700m. A substantial part of this is due to the defendants (the debt). By clauses 3 and 4 of the Charge the debt was assigned by the defendants to the Ban): of Tokyo. Although expressed to be an absolute assignment, the provision for reassignment in the same document, clause 19, shows that the assignment was in truth made by way of security only.

4. In these circumstances the plaintiffs applied for a charging order over the shares and a garnishee order over the debt. On 16th October 1984 Master Boa made absolute: -

5. The defendants now appeal against that Order and on their behalf Mr. Benjamin Yu takes three points:-

 

        I disagree. Mr. Yu's analysis of the English position is correct up to 1925 but not thereafter. By section 99(1) of the Judicature Act 1925 the English Rules Committee was empowered to make rules regulating "the procedure and practice to be followed.....in the High Court" in any case where that Court had jurisdiction ss(a). It was specifically empowered to make rules in respect of the matters covered by the statutes enumerated in the First Schedule to the Act, ss(f): and after making such rules to repeal any such enactments, ss(g). The relevant sections of the 1838 Act and the 1840 Act are listed in the First Schedule. The power to repeal those Acts given by section 99(1)(g) makes it quite plain to my mind that after 1925 the Rules Committee's operative power stemmed from section 99 itself, and not from those Acts. This again teas demonstrated in 1965 when by 1965 S.I. No. 1776 the Acts were replaced by a rule identical to our O.52 r.2.

 

         In my judgment the effect of section 54(1) of the Supreme Court Ordinance (Cap. 4), which is derived from section 99 of the 1925 Act, is to give the Rules Committee in Hong Kong the same general power as was vested in their colleagues in England; with the specific power to make rules relating to the execution of the process of the Supreme Court (the equivalent of section 99(1)(f)) being found in (h). Unlike the position in Mohan v. McElney (1983) H.K.L.R. 308 there is no conflict between the material rule and any substantive law. In my judgment O.52 r.2 was properly and validly made.

 

 

        This line of authority shows that 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 circumstance exist the above choice is not available to the Court.

 

        That is the position here. No one, including the directors of the defendant:, has chosen to put either of these companies in liquidation. What has happened over the past two years cannot be described as an equal distribution. There have simply been individual settlements on terms unknown with individual creditors. There is at present no prospect of a true pari passu distribution taking place. So in my judgment these authorities have no application and the Master was right.

 

(3)

Finally Mr. Yu submits that the Garnishee Order is misconceived. O.49 r.1enables the Court to "order the garnishee to pay the judgment debtor the amount of any debt due or accruing due to the judgment debtor from the garnishee” The debt he submits has accrued and has been assigned to the Rank of Tokyo. An equity of redemption cannot be garnisheed, and nothing is now owing by the garnishee to the judgment debtors.

 

        This does not put the debt beyond the reach of the judgment creditors replies Mr. Ching. He points out that the assignment to the bank is not absolute but by way of charge. He does not seek to garnishee the equity of redemption but the debt itself after reassignment under clause 19. It is at that moment that the debt, or any unpaid part of it, will accrue due from the garnishee to the judgment debtor, and it is at that moment that the Order properly will bite. He relies particularly upon the observations of Jervis C.J. in Hirsch v. Coates (1856) 25 L.J. CP (NS) 315, who at page 317 said: "A judgment creditor may obtain an ex parte order .... to attach debts owing or accruing to the judgment debtor, and that Order binds those debts and makes ultimately available to the execution creditor so much as may remain after satisfying all equitable claims thereon. If the debts have been assigned, and the assignment swallows up the whole, then the judgment creditor gets nothing .... If the debtor has charged or parted with his interest in the debt, then, except as to any excess beyond the amount of the charge, no interest will go to the person obtaining airing the Order."

6. Authority and good sense favour Mr. Ching's submission, which I accept. It follows that this appeal fails and must be dismissed with costs.