HSIEH MING YIN v. AU SIN YEE also known as AU SIN YEE SHIRLEY

DCCJ 2656/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2656 OF 2014

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DECISION

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INTRODUCTION

1. This is an appeal by the defendant against the Garnishee Order Absolute made by Registrar Lui on 16 December 2014 (“the Order Absolute”).

2. Under the Order Absolute, the garnishee, ie the defendant’s banker HSBC, was ordered to make payment from her account maintained with the bank to the plaintiff in order to satisfy the debt allegedly owed by the defendant to the plaintiff in the sum of $19,017.36 (“the Alleged Debt”), together with the costs of the garnishee proceedings summarily assessed at $19,500.

BACKGROUND

3. The defendant was the former tenant of the plaintiff.  By a tenancy agreement written in Chinese dated 27 September 2012 made between the plaintiff as landlord and the defendant as tenant, the plaintiff let a premises situated at no.79 Waterloo Road, Kowloon, Hong Kong (“the Premises”) for a period of two years commencing from 3 October 2012 at the monthly rental of HK$18,000 (which was inclusive of rates but exclusive of management fees) to the defendant (“the Tenancy Agreement”). 

4. The defendant was late in paying her rent which led the plaintiff to issue the present proceedings on 9 July 2014.  Under the statement of claim, the plaintiff claimed a sum of HK$37,460, being the arrears of rent and management fees payable under the Tenancy Agreement.  This sum included two months of rent at $18,000 per month for the period from 3 June 2014 to 2 August 2014 and the management fees of $730 per month for the period from 1 June 2014 to 31 July 2014. 

5. In the statement of claim, the plaintiff also claimed for vacant possession of the Premises, interest on the said sum of HK$37,460, mesne profits of the Premises at the rate of HK$18,000 per month from 3 August 2014 up to the date when vacant possession of the Premises is delivered to the plaintiff by the defendant; management fees at HK$730 per month from 1 August 2014 up to the date when vacant possession of the Premises is delivered to the plaintiff; damages for breach of the Tenancy Agreement to be assessed; and costs of the action.

6. On 6 August 2014, the defendant sent a cheque to the plaintiff’s solicitors in the sum of HK$37,460 in payment of the arrears of rent and management fees claimed under the statement of claim. 

7. On 29 August 2014, the plaintiff entered final and interlocutory judgment (“the Judgment”) for the following:-

(i)  vacant possession;

(ii)  interest on the said sum of $37,460 from 9 July 2014 (date of the writ) until 12 August 2014 (which presumably was the date when the cheque was credited into the plaintiff’s bank account);

(iii)  mesne profits from 3 August 2014 until the date of delivery of vacant possession;

(iv)  management fees from 1 August 2014 until the date of delivery of vacant possession;

(v)  damages to be assessed; and

(vi)  costs.

8. By a letter dated 1 September 2014, the plaintiff’s solicitors served a copy of the Judgment on the defendant. 

9. The plaintiff’s solicitors also served a notice dated 1 September 2014 on the defendant demanding that she should vacate the Premises by 10 September 2014 (“the Notice”).

10. On 4 September 2014, the plaintiff’s solicitors, without any prior warning or notice to the defendant, applied for a garnishee order. 

11. On 10 September 2014, a garnishee order to show cause was issued by a master (“Order Nisi”). However, it is to be noted that the Order Nisi was not filed in court until 15 September 2014 and the same was not served on the defendant until 24 September 2014. 

12. Also on 10 September 2014, as was demanded by the Notice, the defendant duly delivered vacant possession of the Premises to the plaintiff through the parties’ respective estate agents. 

13. On 17 September 2014, the defendant found out that she was not able to withdraw money from her account maintained with the garnishee.

14. On 19 September 2014, the defendant’s solicitors (who were only acting for her to enquire about the garnishee order but not then in the present proceedings) requested the plaintiff’s solicitors to discharge the Order Nisi. 

15. A hearing was fixed before the registrar on 15 October 2014 to hear the application to make the garnishee order absolute. 

16. On 8 October 2014, the defendant, who was then acting in person, filed an affirmation in Chinese to oppose the application. 

17. No affirmation was filed by the plaintiff or his solicitors in reply to the matters raised by the defendant in her affirmation.

18. On 15 October 2014, the defendant appeared in person to oppose the Order Nisi.  At the hearing, the registrar adjourned the hearing to 16 December 2014 purportedly to allow the defendant to take out an application to set aside the Judgment entered against her. 

19. On 17 October 2014, having obtained legal advice, the defendant sent a letter to the plaintiff’s solicitors worked out the final amount she considered was payable to the plaintiff under the Judgment.  She enclosed a cashier order for the sum of HK$1,794.46 and in the name of the plaintiff’s solicitors in purported settlement of what she considered as the outstanding sum still owed to the plaintiff at the time.  It is important to note that, in the same letter, the defendant expressly stated that if the plaintiff’s solicitors considered her calculation was incorrect and if there were any other outstanding sums which they thought was still owed by her, they should inform her and she would take appropriate action accordingly.  In respect of the legal costs, she also expressly stated that she would be willing to pay the costs after an assessment is made by the court. 

20. On 4 November 2014, the plaintiff’s solicitors rejected the offer and stated that the defendant could not unilaterally ask the rental deposit of HK$36,000 to be deducted as part of the rental payment or to satisfy the Judgment.  They claimed that the deposit would be used to set off any loss of the plaintiff, including the legal costs in the proceedings.  Further, the plaintiff’s solicitors pointed out that there was still an outstanding electricity bill in the sum of HK$8,163 which had not been paid by the defendant. 

21. On 5 December 2014, the defendant filed a 2^nd affirmation in Chinese to oppose the plaintiff’s application to make the Order Nisi absolute. 

22. On 16 December 2014, the defendant appeared in person before the registrar.  At the end of the hearing, the registrar made the Order Absolute. 

DISCUSSION

23. The defendant’s appeal against the registrar’s decision was made pursuant to Order 58 rule 1 of the Rules of the District Court (“RDC”). 

24. It has been well established that an appeal from a master to a judge in chambers is dealt with by way of an actual rehearing of the application which led to the order under appeal.  At the hearing, the judge treats the matter as if it came before him for the first time: See §58/1/2 of Hong Kong Civil Procedure 2015 and the cases of Killenny Limited & Ors v Attorney General [1996] 1 HKC 30 at 37 per Litton V-P; Core Resources (Far East) Limited v Sky Finders Ltd [1992] 1 HKLR 193 at 197 per Kaplan J. 

25. As Lord Atkin in Evans v Bartlam [1937] AC 473 at 478, had stated, the judge “will of course give the weight it deserves to the previous decision of the Master; but he is in no way bound by it”.  Further, the judge in chambers is in no way fettered by the previous exercise of the master’s discretion.  However, it has also been said that a judge hearing an appeal from a master, is entitled, if he thinks fit, to adopt the master’s reasoning in his own judgment without setting out the reasoning himself; by so doing the judge does not fail to exercise the discretion conferred on him: See Rae v Yorkshire Bank Plc 16 October 1989 The Times; R v Supreme Court Taxing Officer, ex p. John Singh & Co; unreported, English Court of Appeal, 31 July 1996: Ip Yin Ping (unreported, HCMP No. 1840 of 2002, [2003] HKEC 176. 

The registrar’s decision

26. Reading from the transcripts provided by the parties for the 2 hearings before the registrar, it is apparent that the learned registrar had taken the view that the defendant must set aside the Judgment entered against her first before she could apply to set aside the Order Nisi.  When the defendant failed to do so by the 2^nd hearing on 16 December 2014, the registrar managed to persuade her that she should agree to make the Order Nisi become absolute “by consent”.  Thus, the plaintiff’s main argument in this appeal is that the Order Absolute made by the registrar on 16 December 2014 was made with the express consent of the defendant and therefore it should not be set aside. 

27. At the beginning of the hearing for this appeal, I asked Mr Patrick Fung SC who represents the defendant and Mr CK Wong, of the plaintiff’s solicitors, who represents the plaintiff, the following questions:-

(i)  Is setting aside a judgment a prerequisite for the discharge of a garnishee order;

(ii)  if the plaintiff was still holding HK$36,000 rental deposit at the date of issuing the garnishee application on 4 September 2014 and the debt owed by the defendant on that day was at HK$19,017.36 only (as worked out by the plaintiff’s solicitors in a subsequent letter dated 23 September 2014), why it was not used to discharge the defendant’s Alleged Debt to the plaintiff instead of taking out a garnishee application;

(iii)  whether the Order Nisi should have been made at all in the first place and if made, whether it should have been proceeded with by the first hearing before the registrar; and

(iv)  whether the “consent” allegedly made by the defendant on 16 December 2014 in front of registrar was valid.

28. Mr Fung SC has agreed with me that those are the core issues that I have to resolve in this appeal.  Mr Wong who represents the plaintiff in this appeal does not dispute with this. 

29. I would therefore deal with those issues in turn here. 

(i)   Is setting aside a judgment a prerequisite for the discharge of a garnishee order?

30. I agree that in an ordinary situation, the setting aside of a default judgment, whether regular or irregular, would generally result in the setting aside of any garnishee order nisi or absolute obtained by the judgment creditor pursuant to the default judgment: See Astro Nusantara International BV v PT Aynuda Prima Mitra (2015) unreported, HCCT 45 of 2000 (Anderson Chow J; 17 February 2015) at §62. 

31. However, I do not consider that setting aside of a judgment is a prerequisite for the discharge of a garnishee order in every single case.  In my judgment, the individual circumstances of the case must be taken into consideration in order to ensure that there will be no injustice resulting from the grant of a garnishee order, whether to the judgment debtor or the garnishee: See eg Burrell & Sons v Read (1895) 11 TLR 36, CA; Marshall v James [1905] 1 Ch 432. 

32. With greatest respect to the registrar, I think he had laboured under the mistaken belief that in order for the defendant to successfully discharge the garnishee order in this case, she must apply to set aside the Judgment first.  In an ordinary case, I would have agreed with the registrar that it would be the right approach.  However, in this case, if one were to take into account of the rather unusual circumstances leading to the garnishee application and the injustice that has caused to the defendant, the obvious answer must be that it would not be necessary.  

33. I agree with Mr Fung SC’s submission that, on the date when the plaintiff’s solicitors applied for the garnishee order on 4 September 2014, the following matters are clear:-

(i)  Under clause (1) of the Tenancy Agreement, the tenancy was going to terminate by efflusion of time on 2 October 2014;

(ii)  the plaintiff was still holding a rental deposit of HK$36,000 from the defendant under clause (5) of the Tenancy Agreement;

(iii)  although the plaintiff’s solicitors had served the Judgment and the Notice on the defendant, they did not ask the defendant to make any payment or to agree to satisfy the Judgment by making payment as when the mesne profits, management fees were finally ascertained at the time of delivery of vacant possession, namely on 10 September 2014; and

(iv)  as regards damages, even ignoring the fact that it was the plaintiff who had asked the defendant to deliver up vacant possession by 10 September 2014 (as opposed to the end of the lease on 2 October 2014), the maximum damages payable by the defendant would be mesne profits up to 2 October 2014 only when the tenancy would be terminated by efflusion of time. 

34. The defendant has frankly admitted that it was due to her fault or omission in failing to pay the rent on time that had led the plaintiff in issuing the writ and statement of claim in this case.  She has also admitted that she had no defence to the plaintiff’s claim: See §6 of the defendant’s affirmation dated 8 October 2014.  All she wanted to do was to pay the plaintiff whatever sum which he claimed was still owing to him in a most cost-effective and efficient manner and got on with her own life. 

35. I therefore do not see why the learned registrar had, under those circumstances, still insisted that the defendant must make an application to set aside the Judgment first before he would entertain the application to discharge of the garnishee order. 

(ii)    Why the rental deposit was not used to discharge the Alleged Debt?

36. It seems to me that as of the date when the plaintiff’s solicitors took out the ex-parte garnishee application, the plaintiff had completely ignored or chose to ignore the fact that the rental deposit he was then holding was more than sufficient to cover the Alleged Debt owed to him by the defendant.

37. Even according to the affirmation filed by the plaintiff’s solicitor in support of the garnishee application on 4 September 2014, the only debt owed by the defendant to the plaintiff on that date comprised of:-

(i)  Interest on the sum of HK$37,460 at the rate of the 8% per annum from 9 July 2014 to 12 August 2014;

(ii)  mesne profits at the rate of HK$18,000 per month from 3 August 2014 to the date when vacant possession of the Premises is delivered up to the plaintiff by the defendant; and

(iii)  management fees at the rate of $730 per month from 1 August 2014 to the date when vacant possession of the Premises is delivered to the plaintiff by the defendant.

38. By the time when the Order Nisi was served on the defendant on 24 September 2014, the plaintiff and his solicitors were fully aware of the fact that the defendant had already delivered vacant possession of the Premises pursuant to the Notice.  It has not been suggested by the plaintiff or his solicitors that the Premises was damaged or was left in such a state that it warranted the deduction of any of the deposit then held by the plaintiff.  The plaintiff’s subsequent claim that the defendant had not discharged the outstanding electricity bill is in my view a red-herring as the defendant was the registered user of the utility and at no time the plaintiff was at risk of paying for those outstanding charges on her behalf.  I note that those outstanding charges were paid by the defendant to the utility company once they were brought to her attention.

39. The only outstanding sums which had not been liquidated at that time would be the damages and the costs of the action. They are however not attachable debts which can be made subject of a garnishee order under the rules: See §§49/1/29 and 49/1/30 of Hong Kong Civil Procedure 2015 at p 926. 

40. I therefore failed to see why, instead of issuing the garnishee proceedings, the plaintiff could not have deducted the Alleged Debt from the rental deposit then held by him as of the date of issuing the Order Nisi. 

(iii) Whether the garnishee application should have been made in the first place, and, if made, whether it should have been proceeded with at all?

41. Given the aforestated circumstances, I am of the view that the garnishee application should not have been made in the first place.  Further, if one were to look at the unfolding of events carefully between the date when the plaintiff took out the garnishee application and up to the date before the first hearing before the registrar, it is quite clear to me that the plaintiff should have never proceeded with the garnishee order application.  The reasons being that:-

(i)  While it is true that HK$37,460 paid by the defendant to the plaintiff’s solicitors was for the payment of rent and management fees in arrears specified under §5 of the statement of claim only, the most that the plaintiff was entitled to as of the date of issuing the Order Nisi was for the rental calculated up to the end of the lease on 2 October 2014.  After that date, whether the plaintiff could rent out the Premises to anybody was neither the concern nor the responsibility of the defendant;

(ii)  by the letter dated 23 September 2014, the plaintiff’s solicitors admitted that as at the date of issuing the garnishee proceedings, a sum of HK$19,017.56 was owed by the defendant to the plaintiff only.  Other than that, it was only a question of having the damages and costs assessed;

(iii)  At that stage, the plaintiff’s solicitors could have easily asked the defendant if she would agree to have that amount deducted from the rental deposit with the damages and costs to be taxed and assessed later;

(iv)  instead, the plaintiff chose to proceed with the garnishee application. 

42. Even assuming that the plaintiff is entitled for the payment of rent and management fees calculated up to the end of the lease on 2 October 2014 (which in itself is doubtful as the defendant had already delivered vacant possession of the Premises on 10 September 2014 in accordance with the demand made under the Notice), the most that the defendant would be owing to the plaintiff by the date when the Order Nisi was served on her on 24 September 2014 was a very small sum which represents 2 months and 2 days of management fees and a negligible sum representing the interest on the outstanding rent only.  That amount would be at no more than HK$1,800 only.  Instead of issuing the garnishee proceedings, the plaintiff or his solicitors could have easily written to the plaintiff or her solicitors in September 2014 to work out the outstanding amount and demanded her to make payment for that relatively small sum.

43. I am sure had the plaintiff or his solicitors done that, the defendant would have happily obliged to pay that small outstanding sum.  As to the costs of the proceedings, the liability to pay does not arise until they are taxed by the court. 

44. Thus, in my judgment, the plaintiff or his solicitors should have never taken out the garnishee proceedings in the first place when the matter could have been easily resolved by way of sending a letter to the defendant demanding the small sum in the region of HK$1,800 to be paid, with costs to be paid when they are assessed by the court.  Further, it is my view that once they found out the defendant’s position as deposed to by her in her affirmation filed on 8 October 2014, they should have never allowed the case to proceed to the hearing before the registrar on 15 October 2014. 

45. Further, at the hearing on 15 October 2014, the plaintiff’s solicitor should have made clear to the registrar that the money held in his client’s hands was more than sufficient to discharge the Alleged Debt it had tried to garnishee against the defendant. Unfortunately, not only that was not done, the plaintiff’s solicitor also failed to inform the court that the defendant had already made it clear in her affirmation that she did not wish to dispute the judgment entered against her.

(iv)  Was the alleged “Consent Order” valid?

46. At the appeal hearing, the plaintiff’s only argument is that the Order Absolute was made by consent on the part of the defendant.

47. When one reads the transcript of the 2^nd hearing, it seems that the defendant, who was acting in person, had reluctantly agreed to the registrar’s suggestion to make the Order Absolute.

48. In my judgment, the Order cannot be said to have been made by consent in its true sense of the word for the following reasons. 

49. First, the Order which was sealed by the plaintiff’s solicitors has not expressed stated that the Order was made by consent.  In fact, the draft submitted to the court for approval had never been expressed in the term that it was done with the consent of the defendant.  This is not surprisingly given Order 42, rule (5)A specifically stated that the rule governing consent judgment shall not apply in a proceedings where any of the parties is a litigant in person or person under a disability: See Order 42, rule 5A at §42/5A at p 856 of the Hong Kong Civil Procedures 2015. 

50. Second, I agree with Mr Fung SC that the Alleged Debt had already been fully paid and extinguished by the time of the hearing on 16 December 2014.  There was simply no debt to speak of by the time of the second hearing.  As such, no consent from the defendant could authorize or validate the making of the Order Absolute to attach funds in account of the defendant with the garnishee in order to satisfy the Alleged Debt which no longer exists.  I agree with Mr Fung SC that any consent, even if given by the defendant, would be meaningless. 

CONCLUSION

51. In conclusion, I am of the view that the registrar has erred by insisting the defendant to take out an application to set aside the Judgment before he would entertain her application to discharge the garnishee order in this case.

52. Further, given the particular circumstances of this case, I consider that it was wrong for the plaintiff and/or his solicitors to apply for the garnishee order in the first place.  Having applied for the Order Nisi, the plaintiff or his solicitors should not have proceeded to the 1^st hearing before the registrar when the defendant had made clear her position under her affirmation and in correspondence.  Further, having received the letter dated 17 October 2014 with the cashier order attached to it, the plaintiff and his solicitors should have never allowed the case to proceed to the hearing on 16 December 2014 and tried to make the Order Nisi become absolute.  It is clear from the 1^st affirmation filed by the defendant on 8 October 2014 that she was willing to settle whatever sum which was owed by her if only she had been told by the plaintiff or his solicitors what was the outstanding sum.  Thus, I am of the view that the plaintiff should not have proceeded to ask for the Order Nisi to be made absolute and the registrar should not have adjourned the proceedings on 15 October 2014 and to make the Order Nisi to become absolute on 16 December 2014.

53. In the aforesaid circumstances, I would allow the appeal of the defendant and discharge the Order Absolute made by the registrar on 16 December 2014 and set aside the costs order made by him on that occasion.  I would also set aside the Order Nisi made by the master on 10 September 2014.

Costs

54. In considering the issue of costs in this case, it is inevitable to ask the question of whether the means of taking out a garnishee order is proportionate to the end of asking the defendant to pay the Alleged Debt as of the date of applying for the Order Nisi.  In other words, whether it helps to achieve the underlying objectives under Order 1A, rule 1 of the RDC under the Civil Justice Reform (“CJR”) regime.

55. From the events cited above, it is apparent that on the date when the plaintiff applied for the Order Nisi, there was more than sufficient money held by him by way of deposit to discharge the Alleged Debt owed by the defendant.  Instead of making an ex-parte application to garnishee the money in the defendant’s account kept with the garnishee, the plaintiff or his solicitors could have easily resolved this matter by asking the defendant to agree to have the Alleged Debt to be deducted from the deposit held and to pay up whatever outstanding sums they considered the defendant still owed under the Judgment.  Regrettably, the plaintiff and his solicitors had chosen a much more oppressive and cost-ineffective way of trying to resolve this matter.  In my view, it is neither reasonable nor proportionate to the end they tried to achieve.  In my judgment, what they had done was against both the letters and spirit of the underlying objectives of the CJR under Order 1A, r.1 of the RDC. 

56. Under those circumstances, I am of the view that the plaintiff should pay for the costs of the appeal as well as the costs below, including costs of the garnishee, on an indemnity basis.  I would therefore make an order nisi that costs of the defendant as well as the garnishee (if any) to be paid by the plaintiff on an indemnity basis, such costs to be taxed if not agreed with certificate for counsel.  The order nisi will become absolute after 14 days in the absence of any application to vary the same.