MODERN FASHION LTD v. HONG KONG PRUDENTIAL KNITTING FACTORY LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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DECISION

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1. This is an appeal from an order of Master Jennings dated 26 September 1995 allowing the Defendant to amend their Notice of Payment-in and dismissing the Plaintiff's application to accept the payment-in. The Plaintiff also issued a summons returnable at the hearing of the appeal for a declaration that the sum of $434,171.52 undertaken by the Defendant to be paid into court is a security for all sums and damages claimed by the Plaintiff in its action against the Defendant. I allowed the appeal against the order of the learned Master. I also held that had it been necessary to rule on the application for a declaration, I would have granted the declaration sought. My reasons are set out below.

Chronology

2. On 21 January 1995, Rogers J. made an Order which is discussed in greater detail below. The Order referred to an undertaking by the Defendant to pay the sum of $434,171.52 into court forthwith "pending final determination of this action". On 25 January 1995, the Defendant made a payment into court which was expressed to be "in satisfaction of the cause of action in respect of which the Plaintiff claims." On 6 July 1995, the Plaintiff applied for acceptance of the sum paid into court. 2 1/2 weeks later, on 24 July 1995, the Defendant applied to amend the Notice of Payment-in pursuant to Order 22, rule 1. The amendment sought was one of substance: it would remove the payment-in from being a payment subject to Order 22. Four days later on 28 July 1995, a petition was presented to wind-up the Defendant.

3. The Defendant's application was heard by Master Jennings on 26 September 1995. On 27 September 1995, the Plaintiff filed a notice of appeal against the decision of Master Jennings. On the same day, the Defendant was wound-up by the court.

4. The effect of the winding-up order is that all further proceedings against the Defendant were stayed by reason of s.186 of the Companies Ordinance, Cap.32.

5. The appeal first came before me on 10 November 1995. As the company had by then already been wound-up, it did not appear. The Official Receiver had just taken over the case and by consent the Plaintiff's appeal and its application for leave to proceed was adjourned. The sum paid into court by the Defendant was ordered to be placed on an interest bearing account at the discretion of the Registrar. Leave was given to the Plaintiff under s.186 of the Companies Ordinance to proceed with the appeal.

The Order

6. On 21 January 1995, the Plaintiff was ordered to deliver the goods therein described to the Defendant within three days from the date of the Order. There are two recitals to the Order that are material. They read as follows :

7. The Order came about in the following circumstances. It was made on the ex parte application of the Defendant with notice to the Plaintiff. In other words, what was initially an ex parte application became an inter partes hearing. The Defendant also provided the Plaintiff with a draft order it was proposing to seek from the court. The draft order differed from the order that was eventually made in a material respect. The second of the recitals set out above originally read differently :

"AND UPON the Defendant by its counsel undertaking to fortify the aforesaid cross-undertaking in damages by the payment of the sum of $434,171.52 to this Honourable Court forthwith."

There is evidence that the change was as a result of objection by the Defendant's counsel and at his insistence the recital was recast: the sum had to remain in court until all the claims and issues between the parties had been determined.

Amendment of the Notice of Payment-in

8. Ought leave to have been granted to amend the Notice of Payment-in? The payment-in which was in standard Order 22 form is dated 25 January 1995, four days after the date of the Order. 5 1/2 months later, the Plaintiff applied for acceptance of the payment-in. 2 1/2 weeks thereafter, in response no doubt to that application, the Defendant applied to amend the Notice.

9. In support of the application, Tse Wai Chuen Paul filed an affidavit on 21 July 1995. He was the solicitor acting for the Defendant at the time the Order was made by Rogers J. According to Mr Tse, it was pursuant to the undertaking to pay the specified sum into court pending final determination of the action that the payment was made on 25 January 1995. Mr Tse explained that he left Hong Kong on 24 January 1995 and left the file in the care of Mr Lai Ah Ming Leon, a partner of Mr Tse's former firm, during his absence. He said that he "verily believes" that Mr Lai "overlooked" that recital in the Order and simply followed the standard form of notice of payment into court. He then asserted that "it was merely an inadvertent slip" that the payment was said to be in satisfaction of the cause of action in respect of which the Plaintiff claims.

10. Mr Lai who was allegedly responsible for drawing up the Notice and making the payment-in did not file affidavit or affirmation to explain what his intention was. I am seriously troubled by the absence of evidence from the only person who could have given an explanation of the alleged mistake. It is to be noted that nowhere does Mr Tse assert that his explanation was derived from information obtained from Mr Lai. Mr Tse's explanation does not come close to providing an adequate, let alone credible, explanation; it was pure speculation on his part.

11. Given the terms of the Order, even a very inexperienced lawyer would have appreciated that the payment to be made pursuant to the Order had nothing whatsoever to do with payment-in under Order 22. Mr Lai to whom the task was delegated was no less than a partner. Moreover I do not accept that Mr Lai could have "overlooked" the recital in the Order : for one thing he had to refer to it for the amount which was not an easily memorable round sum. If he had to refer to the Order, it would have been blindingly obvious that the undertaking had nothing to do with Order 22. In those circumstances, it is simply not credible that a mistake occurred as suggested by Mr Tse. There is also the inexplicable long delay between the payment-in and the application to amend. In the circumstances, there was insufficient evidence to warrant an exercise of the discretion to allow the amendment which by no stretch of the imagination could be described as technical. Accordingly, the appeal against the Order of Master Jennings dated 26 September 1995 is allowed. It follows that the sum of $434,171.52 paid into court by the Defendant on 25 January 1995 be paid out to the Plaintiff in satisfaction of the causes of action in respect of which the Plaintiff claims.

Was the sum paid into court a security?

12. In view of my decision to allow the appeal against the Master's Order, it is not strictly necessary for me to consider this question. Nevertheless as the point has been argued, I will deal with it briefly.

13. The Official Receiver submitted that the payment-in of the sum of money was not by way of security but served merely to fortify the Defendant's undertaking as to damages sustained by the Plaintiff by reason of the Order and therefore was not a security. Had the Order been in the form as originally drafted, that would appear to be a correct interpretation of the effect of the Order. However, as noted above, that is not what the relevant recitals now say. It is clear that the purpose of the payment was "pending final determination of this Action". It was the quid pro quo for requiring the Plaintiff to make delivery of the goods. In my judgment, the payment "pending final determination of the Action" is indistinguishable from a payment into court "to abide the event".

14. In re Ford Ex parte the Trustee [1900] 2 QB 211 (at 213) it is stated as follows:

"It is settled that where money is ordered to be paid into court to abide the event it must be treated as a security that the Plaintiff shall not lose the benefit of the decision of the court in his favour ... The very object of such an Order is that the Plaintiff shall be in as good a position, so far as the money paid in extends, against contingencies such as bankruptcy as if he had got an immediate judgment."

This followed the earlier decision of Ex parte Banner, In re Keyworth [1874] LR 9 Ch App 379. These authorities establish that where money has been paid into court to abide an event, the plaintiff becomes the security creditor to the extent of monies paid into court. It matters not whether the payment-in is voluntary or involuntary. See W.H. Sherratt Ltd. v. John Bromley (Church Stretton) Ltd. [1985] 1 All ER 216.

15. Therefore, had it been necessary to decide the point, I would have granted the declaration that the money paid into court pursuant to the Order is a security for all sums and damages claimed by the Plaintiff.

16. Insofar as the appeal against the Order of Master Jennings is concerned, I make an order nisi for costs to the Plaintiff. On the question whether or not the payment-in was a security, the parties have agreed that there shall be no order as to costs.