Interpaul Trading Co. Ltd. v. Jia Pai Co. Ltd.

DCCJ14016/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 14016 OF 2000

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J U D G M E N T

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1. This is the adjourned hearing of the Judgment Creditor's application for Garnishee Order Absolute.

2. The Judgment Creditor herein obtained judgment against both Judgment Debtors on 25 November 2000. In an urgent application made on the same day, the Judgment Creditor applied for a Garnishee Order Nisi in respect of: (i) an alleged debt owed to the 1st Judgment Debtor under a Letter of Credit; (ii) a bank account maintained by the 1st Judgment Debtor with the 3rd garnishee (Account No. 04348900036612).

3. The Order Nisi was granted by Master C K Chan on 25 November 2000, with the following parties joined as the Garnishees:

1) LCPA First Union National Bank, the advising bank of the said Letter of Credit, as the 1st Garnishee;

2) Mercantile Trade Services Limited, the issuing bank of the said letter of credit, as the 2nd Garnishee; and

3) Nangyang Commercial Bank Limited, in which the 1st Judgment Debtor maintained a bank account, as the 3rd Garnishee.

4. On 13 December 2000, the 3rd Garnishee filed an affidavit in opposition made by one of his senior officers, Mr Fong Pak-keung. According to this affirmation, the 1st Judgment Debtor, in consideration of credit facilities advanced by the 3rd Garnishee to the 1st Judgment Debtor, had negotiated the said Letter of Credit with the 3rd Garnishee. As the 1st Judgment Debtor had not repaid the loan under the said credit facilities, the 3rd Garnishee was entitled to present the said Letter of Credit for payment, and there was therefore no debt due or accruing due to the 1st Judgment Debtor by the 3rd Garnishee.

5. On 14 December 2000, the 1st and the 2nd Garnishees also filed an affirmation in relation to the application for Order Absolute. They admitted that the 1st Garnishee held a sum of US$51,837.87 under the said Letter of Credit and they would like the court to give direction as to who should be entitled to such sum of money.

6. The application for Order Absolute was first heard by Master A. Chow on 18 December 2000. The learned Master adjourned the application for argument and gave directions relating to the filing of affirmations.

7. After that hearing, the 3rd Garnishee filed a further affidavit to clarify the status of all the bank accounts held by the 1st Judgment Debtor with the 3rd Garnishee. The information disclosed confirmed that the 1st Judgment Debtor had not repaid the loan under the said credit facilities, and so the 3rd Garnishee was entitled to the payment under the said Letter of Credit.

8. In the adjourned hearing today, the Judgment Creditor sensibly abandons the application for Order Absolute, and so the only issue left now is one of costs.

9. It is trite law that if the garnishee proceedings are unsuccessful, the court has a wide discretion as to the costs incurred (see the Supreme Court Practice 1999, Volume I, paragraph 49/10/1). However, Miss Mellors for the 1st and the 2nd Garnishees refers me to the decision of Deputy Judge Cruden in the case of Ever Good Trading Corporation v Cheng Ching-kwok T/A Bonanza Industry Company v Hang Seng Bank Limited & Others (Garnishee) [1988] 1 HKLR 307 in support of her application for the garnishees' costs to be paid by the Judgment Creditor.

10. In that case, the judgment creditor sought to make a Garnishee Order in respect of two bank accounts maintained by the judgment debtor with the garnishee BNP Bank. The garnishee alleged that the credit balance in one of the accounts was subject to a blocked deposit undertaking in favour of the garnishee, held as security for a guarantee the garnishee had given for the Judgment Debtor to a third party, and so the credit balance in that bank account should not have been subject to the Garnishee Order. The master accepted such argument and discharged the Garnishee Order in respect of that bank account. The master also ordered the judgment creditor to pay the garnishee's fixed costs under Order 62 Rule 32(4) of the then Rules of the Supreme Court. The garnishee was not satisfied with the fixed costs order and so it launched an appeal before Deputy Judge Cruden.

11. The learned judge in a very detailed judgment ruled the following:-

1) In a majority of garnishee proceedings, the prima facie provision for fixed costs was appropriate and reasonable. However, that case was not one where a formal order on undisputed facts was made, and it was the very kind of case where the prima facie entitlement to fixed costs was displaced;

2) In the case of bank garnishees and other innocent third parties, the costs practice which had evolved in Mareva injunctions and discovery cases provided, by way of analogy, useful guidance. Where a bank or similar institution through no fault of its own became involved in court proceedings and was under a duty to make disclosure for the benefit of another party, or on reasonable grounds otherwise properly did so, the expense incurred by the bank ought generally to be paid by that other party.

12. Applying the aforesaid principle, the learned judge ordered the bank garnishee's costs to be paid by the judgment creditor on a party and party basis.

13. The facts of the present case are very similar to those in the Ever Good Trading Corporation case. I agree with the reasoning given by Deputy Judge Cruden in that case and the same principle should therefore apply.

14. Undoubtedly, one can say that the Judgment Creditor has been reasonable in taking out the application for Garnishee Order, and so it should not be asked to pay for the costs of the Garnishees in the case that the proceedings are unsuccessful. However, when a judgment creditor makes an application for Garnishee Order, he does so at his own risk as to costs. Indeed, Sach LJ said the following in the case of T. Wright & Son (Hull) Limited v Westoby, [1972] 3 All ER 1078 (this case was cited in the judgment of Deputy Judge Cruden in the Ever Good Trading Corporation case) and I quote (at page 1082):

"It seems to me that one can adopt as a starting point that where a Judgment Creditor takes garnishee proceedings without being led into them by the Judgment Debtor, he does so at his own risk as to costs. On the other hand, there can arise a wide range of cases in which on the particular facts it is open to the court to find the existence of grounds on which in its discretion it may consider the Judgment Debtor ought to bear the costs."

15. Hence, with all the sympathy with the Judgment Creditor in the present case, it still has to bear the costs of the three innocent bank Garnishees.

16. For the purpose of this application, I do not have to consider the question of fixed costs. For some unknown reasons, probably due to oversight, the provision relating to fixed costs in garnishee proceedings has been left out in the Second Schedule of Order 62 of the Rules of the District Court. In such circumstances, fixed costs do not apply to garnishee proceedings in the District Court, and so the Garnishee's costs should be paid on a party and party basis to be assessed in accordance with Order 62, Rule 28(2) of the Rules of the District Court.

17. I also do not accept that the proceedings have been unnecessarily prolonged by the 3rd Garnishee's failure to disclose the full details of the 1st Judgment Debtor's bank accounts in the first affidavit. According to the notes prepared by Master A Chow, Mr Heung for the Judgment Creditor in the hearing on 18 December 2000 asked for an adjournment of two weeks to take full instructions and to make research in the law. In such case, it was clear that the Judgment Creditor's concern at that time was whether the 3rd Garnishee was, as a matter of law, entitled to the money under the said Letter of Credit. If the Judgment Creditor was really concerned about the details of the bank accounts, the Judgment Creditor could have asked the 3rd Garnishee to provide such information in the hearing on 18 December 2000. Hence, I do not accept that the proceedings have been prolonged unnecessarily by the failure of the 3rd Garnishee to give full details about the 1st Judgment Debtor's accounts in the first affidavit in opposition.

18. Based on the aforesaid, I make the following orders:

1) The Garnishee Order be discharged; and

2) The Garnishee's costs to be paid by the Judgment Creditor.