UNITED KESVICK LTD v. TSANG WING FAI AND OTHERS

HCA 804/2019

[2020] HKCFI 2922

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 804 OF 2019

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D E C I S I O N

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A. INTRODUCTION

1.  This is the application of the Plaintiff (“UKL”) for 2 garnishee orders nisi to be made absolute and for variation of 2 injunctions to enable payments out to meet the garnishee orders absolute.  The background is as follows.

2.  On 3 January 2020, Deputy Judge Blair gave leave to enter judgment in favour of UKL in default of defence from the Defendants.  He ordered the 3 Defendants to pay various sums of money to UKL.

3.  On 3 June 2020, UKL made ex parte applications for garnishee orders nisi, the garnishees being the Hang Seng Bank and Citibank.

4.  Master Tsui raised, amongst others, the following Requisition:

“Judgment was entered against D1, D2 and D3 on 3 January 2020. It was declared that they hold the sums in the specified amounts in the 1^st and 2^nd Defendants’ Joint Account and the 3^rd Judgment Debtor’s Bank Account on trust for P. See paras 3 to 5 of the Judgment.

In light of P’s beneficial ownership in the sums, can the bank accounts be garnisheed?

P is referred to para 49/1/41 of the White Book, Rong Wei v Chiu Sun Fai [2020] HKCFI 692 (paras 21 to 24) and International Automotive Components Group sro v Xuke Trading Ltd HCMP 546/2017, 19 April 2017 (paras 30-35).”

5.  UKL made representations by letter dated 22 June 2020.

6.  On 29 July 2020, this Court granted to UKL the 2 garnishee orders nisi and directed the applications to be disposed of on paper with written submissions.

7.  Upon this Court’s direction, UKL filed the summons for variation of 2 injunctions on 10 August 2020 to enable payment out.

8.  The Defendants (Mr Tsang, Mrs Tsang and Viceroy, respectively) have not filed any affirmation in opposition to the garnishee proceedings or the summons.

9.  Mr Tsang has written to inform the Court of his illness and asked that “any further High Court proceedings by the Defendants under Garnishee Order until [his] recovery from illness.”  The Court has informed him that there would be no oral hearing, and that he could show cause in opposition to the garnishee proceedings or lodge submission in writing.

10.  Mrs Tsang wrote to the Court on 10 September 2020, stating that she “solemnly, sincerely and truly affirm …” but she never affirmed:

(1)  She explained certain deposits into the Defendants’ bank accounts and a joint account of Mr Tsang and their son (“TYY”) as being for the benefit of TYY and repayments of loan from UKL.

(2)  She attacked the motive and propriety of action on the part of Ms Wong, the administratrix of the estate of Mr Tsang’s mother.

(3)  She stated that Mr Tsang was and is a serious cancer patient.  The Tsangs urgently needed money for expenses.

11.  I shall consider the learned Master’s requisition and the grounds raised in Mrs Tsang’s letter in turn.

B.  SERVICE

12.  At the outset, I wish to point out that UKL’s service was defective. The garnishee orders nisi were served on the banks and the 1^st and 2^nd Defendants on the same date, ie 10 August 2020.  This violated Order 49, rule 3 which requires service to be effected first on the garnishees and then at least 7 days later on the Defendants and at least 7 days have elapsed before the initial hearing fixed on 20 August 2020.

13.  On 18 August 2020, UKL’s solicitors (“HIP”) wrote to the Court claiming, amongst others, compliance with the rules as to service.  This was of course not valid compliance, although there was no evidence of HIP deliberately flouting the law.

14.  However, there cannot be any dispute that the banks have been served and so have the Defendants.  The banks remain neutral, save that Hang Seng Bank pointed out that one account (262-xxxxxx-002) was held in the joint names of Mr Tsang and another who was not a party to this action.

15.  HIP had informed the Defendants that they had 14 days from 10 August 2020 to show cause or to answer the summons.  There was no prejudice caused as the Defendants did not file any affidavit at all.

16.  From 10 August 2020 until the last set of submission from the Defendants on 10 September, there had been one full month.  I am satisfied that the Defendants have had sufficient time to consider the papers and to show cause/make submissions if they were minded to.  I therefore proceed to consider the present applications. 

C. LEGAL PRINCIPLES APPLICABLE TO GARNISHEE PROCEEDINGS

17.  A garnishee order is a statutory mode of enforcement available to a judgment creditor created under section 21 of the High Court Ordinance (“HCO”), Cap 4.  Under section 21(1):

“A sum standing to the credit of a person in a deposit account in an authorized financial institution shall, for the purposes of the jurisdiction of the Court of First Instance to attach debts for the purpose of satisfying judgments or orders for the payment of money, be deemed to be a sum due or accruing to that person and, subject to rules of court, shall be attachable accordingly, notwithstanding that any of the following conditions applicable to the account, that is to say—

(a) any condition that notice is required before any money is withdrawn;

(b) any condition that a personal application must be made before any money is withdrawn;

(c) any condition that a deposit book must be produced before any money is withdrawn;

(d) any condition that a receipt for money deposited must be produced before any money is withdrawn; or

(e) any other condition prescribed by rules of court,

has not been satisfied.” (underline added)

18.  Order 49, rule 1(1) of the Rules of the High Court provides that:

“Where a person (in this Order referred to as “the judgment creditor”) has obtained a judgment or order for the payment by some other person (in this Order referred to as “the judgment debtor”) of a sum of money amounting in value to at least $1,000, not being a judgment or order for the payment of money into court, and any other person within the jurisdiction (in this Order referred to as “the garnishee”) is indebted to the judgment debtor, the Court may, subject to the provisions of this Order and of any written law, order the garnishee to pay the judgment creditor the amount of any debt due or accruing due to the judgment debtor from the garnishee, or so much thereof as is sufficient to satisfy that judgment or order and the costs of the garnishee proceedings.”

19.  Even if the judgment debtor is not the beneficial owner of the debt/sum and was just holding it as trustee, the Court has jurisdiction to make a garnishee order: Deutsche Schahtbau-Und-Tiefbohrgesellschaft Mbh v Ras AL Khaimah National Oil Co [1990] 1 AC 295 (HL) (“the DSUTM case”).

20.  In that case, Lord Goff (delivering the majority judgment) rejected the argument that proof of the existence of beneficial ownership of the debt of a third party had the effect that the Court had no jurisdiction to make a garnishee order absolute.  He held that under Order 49, rule 1, all that has to be proved is that “any other person within the jurisdiction … is indebted to the judgment debtor” to found the court’s jurisdiction.  See DSUTM case, at 350D‑G.

21.  The next step is for the Court to exercise its discretion to decide whether to make the garnishee order absolute.

22.  If there are third parties who make claims to the funds in the judgment debtor’s bank account, Order 49, rule 6 applies.

“(1) If in garnishee proceedings it is brought to the notice of the Court that some other person than the judgment debtor is or claims to be entitled to the debt sought to be attached or has or claims to have a charge or lien upon it, the Court may order that person to attend before the Court and state the nature of his claim with particulars thereof.

(2)  After hearing any person who attends before the Court in compliance with an order under paragraph (1), the Court may summarily determine the questions at issue between the claimants or make such other order as it thinks just, including an order that any question or issue necessary for determining the validity of the claim of such other person as is mentioned in paragraph (1) be tried in such manner as is mentioned in rule 5.”

23.  If it were to be established under this procedure that a person other than the judgment debtor was legally entitled to the debt, that would be the end of the matter.  It appears however that the procedure under this rule applies where the garnishee suggests not that the debt is due to a third party, but that the debt is payable to the judgment debtor as trustee. If that was found to be so under the procedure laid down by the rule, or indeed otherwise, the Court would be bound to take that matter into account in exercising its discretion under rule 1.  No doubt it would normally not make a garnishee order absolute, but it would not be deprived of jurisdiction to make such an order if in the circumstances it was just to do so. (DSUTM case, at 351B-D)

D.  THE REQUISITION

D1.  Whether, in the light of UKL’s beneficial ownership in the funds, the bank accounts can be garnisheed

24.  In my view, the answer is “yes”.  See paragraphs 19 and 20 above.  In fact, section 21 of HCO deems those funds to be due to the judgment debtor, although the right to call upon the banks to repay remains with the judgment debtor.  The Court can issue a garnishee order to override the judgment debtor’s right for the purpose of enforcement.

D2.  Hong Kong Civil Procedure 2020, Vol 1, §49/1/41

25.  This passage in the White Book states that a trustee, who holds money settled by the judgment debtor upon trust to pay it to A, is not a debtor in respect of such money, even if the judgment creditor gets the settlement set aside as void, and the trustee directed to pay over to him the sum settled. 

26.  This passage is not applicable to the present circumstances because there has been no claim by the Tsangs that anybody but themselves were the owners of the money in the subject bank accounts.  They had never settled their money on trust to pay someone.

D3.  Rong Wei

27.  Rong Wei (and International Automotive) is in a series of authorities that developed recently on enforcement of default judgments involving proprietary claims, specifically by way of vesting orders.  The common facts in that series of authorities were that the plaintiffs were victims of email frauds who had transferred money into the bank accounts of the defendants.  The plaintiffs obtained default judgments, most often with a declaration that the defendants were holding the defrauded sums as constructive trustees for the plaintiffs.  Instead of garnishee orders, the plaintiffs sought vesting orders under section 52 of the Trustee Ordinance, Cap 29, to vest monies standing in the defendants’ bank accounts in the plaintiffs:

(1)  Some judges granted vesting orders, eg Minimax GMBH & Co Kg (Singapore Branch) v Gopom Products Ltd & anor, [2019] HKDC 760, Her Honour Judge Tsui; Wismettac Asian Foods, Inc v United Top Properties Limited & ors,[2020] HKCFI 1504, DHCJ Paul Lam SC.

(2)  Others refused, eg International Automotive Components Group s.r.o v Xuke Trading Ltd, HCMP546/2017 (19 April 2017, unreported), DHCJ Paul Lam SC; Chiu Jui Jung v Legend Dynamic Solution Ltd, [2019] HKDC 1701, Her Honour Judge Phoebe Man; 800 Columbia Project Company LLC v Hong Kong Bosing Trade Limited & anor, [2020] HKCFI 1293, Recorder Eugene Fung SC; Tokić, D.O.O. v Hongkong Shui Fat Trading Ltd & ors,[2020] HKCFI 1822, DHCJ Douglas Lam SC.

28.  Various reasons were given in the authorities regarding vesting orders, but I do not need to express any views here because UKL has not sought a vesting order. 

29.  It is important to note, however, that all the authorities referred to in paragraph 27 were in agreement that garnishee proceedings were viable for enforcement of the judgments therein involving proprietary rights. Specifically, the defendants therein were held to be constructive trustees because of their wrongdoing.

30.  Rong Wei, is distinguishable from the present case on the facts. The judgment creditor initially claimed but abandoned his proprietary claim over the funds in the bank account (§21).  He relied on a money judgment to seek and obtained a garnishee order (§22).  As rightly pointed out by HIP, Rong Wei is not an authority for the proposition that the court cannot grant a garnishee order over sums beneficially owned by the judgment creditor; it simply was not in issue.

31.  Rong Wei in turn referred to Banco de Chile v Yong Ming Tai Technology Trade Co Ltd [2019] HKCFI 1233).  In Banco de Chile, P obtained an injunction based on a proprietary claim against D3.  M, a victim of cyber fraud in another case, obtained judgment and a garnishee order absolute against D3.  However, M could not obtain funds from D3’s bank account because of P’s proprietary injunction.  M gave notice to P of the judgment and garnishee order absolute.  As D3’s funds were insufficient to meet both claims, M and P agreed to a pari passu division of D3’s funds.  The Court gave judgment to P in Banco de Chile and varied the injunction to enable payment out of D3’s funds to P and M.

32.  Again, Banco de Chile is not an authority for the proposition that the court cannot grant a garnishee order over sums beneficially claimed or owned by the judgment creditor.  The situation is more akin to the Court’s exercise of discretion under Order 49, rule 6 where it has received notice of competing claims over the judgment debtor’s money. 

33.  In the present case, unlike Banco de Chile, UKL was the party who obtained the injunction in the first place.  The Defendants were declared to be holding funds in certain frozen bank accounts for UKL.  UKL now seeks garnishee orders against the Defendants so as to take money out of the accounts protected by the injunctions.  The Defendants have been given the opportunity to oppose. I do not see why the Court cannot grant garnishee orders absolute if it is just to do so.

D4.  International Automotive Components

34.  In International Automotive Components, P used an originating summons to claim for money judgment, declarations and a vesting order against fraudsters.  The Court held that Ds were liable to account for the money as constructive trustees (§§14-15).  The Court held that money in D2’s bank account did not belong to D2 beneficially or any third party at all but P (§§33, 37). 

35.  P sought a direction for notice of the originating summons to be served on HSBC.  The Court declined, expressly doubting the proprietary of a vesting order sought against HSBC without going through the procedure of seeking a garnishee order absolute (§§19, 22, 29).

36.  It was stated, obiter, in International Automotive Components that it was only if the judgment creditor was not the beneficial owner of the funds in the bank account of which a garnishee order was sought that the Court would exercise its discretion to refuse making the garnishee order absolute.

“A garnishee order nisi will not and cannot otherwise affect the proprietary interest in the funds in the bank account in question. Hence, if it transpires that the judgment debtor is merely holding the monies in the bank account on trust in favour of a third party (who is not the judgment creditor), the court will not make a garnishee order absolute and will discharge the garnishee order nisi. If the judgment creditor is claiming proprietary interest over the bank’s right of set off, it is open for the judgment creditor to do so in the garnishee proceedings.” (§§31-34) (underline added)

I agree with this proposition.

D5.  Rulings as regards the Master’s Requisition

37.  Deputy Judge Blair has held that the monies standing in the respective Defendants’ bank accounts belonged beneficially to UKL.

38.  The injunction orders were sought at the commencement of this action to freeze, amongst others, the 2 subject bank accounts, which allegedly received monies misappropriated from UKL.  It would be self-defeating to tell UKL after judgment that no garnishee order will be granted to her for the same reason for which she sought the injunctions.

39.  The Court has jurisdiction and it is just to exercise its discretion to make the garnishee orders absolute, unless the Defendants can show valid grounds of objection.

E.  THE GROUNDS IN OPPOSITION

E1.  Explanations for deposits into the bank accounts

40.  Mrs Tsang’s letter stated as follows:

(1)  In respect of HK$6,176,286.10 (which corresponded to §26 of the statement of claim (“soc”), withdrawn on 28 December 2018), it was a loan which UKL had borrowed from Viceroy with interest.  It was reflected in the financial statements of UKL and the auditors had provided the report to Ms Wong.

(2)  In respect of HK$1,573,000 (which corresponded to §32 of soc, withdrawn on 30 March 2019), it was transferred from UKL’s account to the joint account of Mr Tsang and TYY (“the Tsang/TYY Account”) for the education support expenses of TYY.  It should have been paid in 2017 but was postponed to 2019 due to insufficient funds.

(3)  In respect of HK$1,887,600 (which corresponded to §32 of soc, withdrawn on 30 March 2019), it was transferred from UKL to the Tsang/TYY Account for the education support expenses of TYY.  It should have been paid in 2017 but postponed to 2019 due to insufficient funds.

The amounts in item (2) and (3) were transferred from the Tsang/TYY Account to Mrs Tsang’s account.

(4)  In respect of HK$2,000,000 (which corresponded to §32 of the soc, withdrawn on 29 April 2019), it was transferred from UKL’s account to the joint account of Mr and Mrs Tsang.

Ms Wong withdrew HK$750,000 and HK$1,950,000 from UKL’s account on 29 April and 2 May 2019, respectively. Mr Tsang was unclear about the matter.  He debited HK$2,000,000 from the UKL account to the joint account of Mr and Mrs Tsang and reported to the police on 29 April 2019.  The HK$2,000,000 is in “the frozen account” (probably meaning an account held by the police).

(5)  The Citibank account is Mrs Tsang’s personal account which was established in 1991 with good credit.  UKL has not provided enough evidence to prove that this account was involved with the estate.

41.  The effect of these explanations was that Mr Tsang, as a former executor of his mother’s estate, had distributed sums of money to his son pursuant to his mother’s will.  These explanations have in fact been put before DHCJ Blair and rejected by him: §§20-31 of the Ruling dated 3 January 2020.

42.  In short, Mr Tsang was removed as an executor and replaced by Ms Wong with effect from 13 August 2018.  Mr and Mrs Tsang were also removed as directors of UKL on 27 May 2019.  In other words, Mr Tsang did not have the capacity to distribute money to the beneficiaries of his mother’s estate on the respective dates of transfer of money. Notwithstanding that Mr and Mrs Tsang had remained as directors of UKL on the dates of transfer, it has not been shown that the transfers were for the benefit of UKL and were hence unlawful.

43.  As for Mrs Tsang’s personal account, even if it had not received any trust monies from the estate, UKL’s right to seek garnishee orders to meet the money judgment against her is not limited to such accounts but also extends to her personal account.

E2.  Lack of propriety of motive and action on the part of Ms Wong

44.  Mrs Tsang alleged that during the transition period from 22 January 2019, Ms Wong had acted with improper motive as she filed a number of lawsuits and injunction orders against the 3 Defendants.  Ms Wong’s hostility caused a significant loss to the beneficiaries under the estate.

45.  Mrs Tsang also claimed that Ms Wong has retired from her role as a partner of KPMG, resigned as administratrix on 30 September 2019 and resigned as director of UKL on 4 October 2019.  Her team of KPMG is still controlling and managing the estate of the deceased including UKL.

46.  With respect, even if what Mrs Tsang alleged were true, this is not the appropriate forum to decide those issues.  These garnishee proceedings are taken out by UKL as a judgment creditor and not by Ms Wong as ex-administratrix.

E3.  The Tsangs’ urgent need for money for expenses

47.  Mrs Tsang claimed that Mr Tsang was and is a serious cancer patient. They urgently needed living expenses, medical expenses and hire lawyers to respond to all litigation.  At present, they live on borrowings from relatives and request for defreezing of the bank account deposits and the personal Citibank bank account of Mrs Tsang.

48.  Without disrespect, the Tsangs were not at liberty to utilize UKL’s monies for their own needs.

F.  CONCLUSION ON GARNISHEE APPLICATION

49.  None of the explanations provided by Mrs Tsang formed good grounds in opposition.

50.  However, the account 262-xxxxxx-002 is held in the names of Mr Tsang and a person who is not a party to this action.  That person has not been served with the garnishee order nisi.  Accordingly, the garnishee order absolute in respect of the Hang Seng Bank accounts shall not apply to that account.  That account shall remain subject to the injunction order granted by Andrew Chan J on 7 May 2019 and eventually extended by DHCJ Blair on 3 January 2020.

51.  Further, in the garnishee order nisi in respect of the Hang Seng Bank accounts, the computation of outstanding debt included a sum of HK$2,786,970 with accrued interest.  However, UKL has given an undertaking to DHCJ Blair not to enforce HK$2,027,230 out of that sum pending delivery of the judgment of Marlene Ng J in HCMP 793/2019.  Accordingly, the computation of debt due and interest thereon should be reduced accordingly.

52.  Subject to the paragraphs 50 and 51, the garnishee orders nisi are made absolute.

G.  THE VARIATION SUMMONS

53.  The application to vary the injunction is for a proper purpose – to allow sums to be released to meet the garnishee orders absolute made and to give consequential directions for varying the amount to be frozen after receipt of funds from the garnishees: Rong Wei, §§27-28.  I grant the applications.

H.  ORDERS

54.  I order as follows:

(1)  Subject to the adjustment of figures in paragraph 51 and save that account no 262-xxxxxx-002 is excluded, the garnishee order nisi in respect of the Hang Seng Bank accounts be made absolute;

(2)  The garnishee order nisi in respect of the Citibank Bank be made absolute;

(3)  The two injunction orders be varied to satisfy the garnishee orders absolute granted in paragraphs (1) and (2) above; and

(4)  Costs of all applications are to be borne by the Defendants.

55.  I have considered the costs statement (which treated the variation application as part of the garnishee order applications).  Despite the legal issues raised by the Master and the Defendants’ opposition, to incur $256,740 on costs is, without disrespect, totally disproportionate to the issue at stake.  Compare to the usual $5,200 for each uncontested garnishee application granted by the Court.  I summarily assess the overall costs on a nisi basis at $100,000.

56.  I thank HIP for their assistance.