The Hong Kong Chinese Bank Ltd. v. Fung Kwong Chiu Advertising Co. Ltd.

HCA001745A/1994

1994, No. A1745

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Coram: the Hon Mr Justice Findlay, in Chambers

Date of hearing: 26 September 1995

Date of handing down of judgment: 28 September 1995

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J U D G M E N T

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1. On 13 July 1995, the judgment creditor obtained judgment against the judgment debtor for the sum of $567,335.33, with interest and costs. On 18 July 1995, the judgment creditor secured a garnishee order nisi under which it was ordered that all debts due and accruing due from the garnishee to the judgment debtor be attached to answer the judgment. This order was served on the garnishee on 21 July 1995. On 22 August 1995, the order was made absolute in respect of the sum of $148,134.12, with costs, which the garnishee was holding in one account of the judgment debtor. On 5 September 1995, the order was made absolute as to the balance of the judgment. The garnishee now appeals against that order.

2. In effect, the order to pay the sum of $148,134.12 is not in dispute. What is in dispute is the order to pay the balance from a fixed deposit account, which, as at 21 July 1995, had a credit balance of $2,121,579.47. The garnishee says it should not be ordered to pay money from this account because it had been charged in favour of the garnishee by two fixed charges, one dated 29 June 1993 and registered on 29 July 1993, and the other dated 20 July 1995 and registered the same day.

3. The charges are in essentially the same terms. By them, the judgment debtor agreed "on demand to pay or discharge to the [garnishee] all moneys obligations and liabilities whether actual or contingent now or at any time due owing or incurred to the [garnishee] by the [judgment debtor]" including in respect of guarantees given by the [garnishee] at the request of the judgment debtor. The judgment debtor charged the deposit by way of first fixed charge and assigned and released the deposit to the [garnishee] as a continuing security for the payment and discharge of all liabilities to the [garnishee]. The judgment debtor also agreed not to suffer to arise any third party rights over the deposit.

4. At the hearing before the Master, the garnishee relied only on these charges. No evidence was adduced by the garnishee as to the details of any indebtedness by the judgment debtor to the garnishee. Before me, the garnishee seeks to adduce additional evidence to the effect that it issued certain guarantees at the request of the judgment debtor. As at 21 July 1995, there were 63 of these guarantees outstanding under which the garnishee had a potential liability of $2,107,000. Since the service of the garnishee order nisi, the garnishee has been obliged to pay out $811,000. Miss Cruden says that I should not allow this additional evidence to be adduced.

5. The appeal before me is, of course, by way of re-hearing. It is not at all unusual for additional evidence to be adduced on these appeals. Leave, of course, is required, but this is usually granted. This is not an unusual case. This is not the kind of case with which Kaplan J. was concerned in Core Resources (Far East) Ltd v Sky Finders Ltd [1992] 1 HKLR 193, in which the evidence sought to be adduced puts before the court a completely different defence arising after the hearing before the Master. Here, the evidence before the Master was that there were fixed charges over the deposit to secure indebtedness to the garnishee. Now, the garnishee seeks to adduce evidence to give details of this indebtedness. I find this acceptable, and I grant leave to adduce the additional evidence.

6. It is clear law that, as against the garnishee, the judgment creditor cannot be stand in a better position than the judgment debtor. The judgment debtor's position is that it has assigned the deposit to the garnishee as a continuing security. On the strength of this, the garnishee has incurred potential obligations to third parties under guarantees. It cannot be said, in any sense, that the money on deposit is due to the judgment debtor. It cannot demand payment of it; it cannot use it as security; it cannot exercise any rights over it. The only right the judgment debtor has is to recover its rights to the money if, at the end of the day, there is anything left after the garnishee has recouped what it has had to pay to meet its obligations under the guarantees given on the basis of its arrangement with the judgment debtor. And this is all that the judgment creditor can ask.

7. Any other conclusion would offend common sense and anyone's sense of justice. The garnishee is a bystander in the litigation between the judgment creditor and the judgment debtor. It has, in the ordinary course of business, entered into a normal banking arrangement. It was entitled to think that the precautions it had taken to reduce the risk of loss would be upheld by the courts. It cannot be right that, because its customer incurred another debt, divorced from the transactions in which the garnishee was involved, that the judgment creditor could obtain the assistance of the courts to remove the security that it had cautiously obtained, and give the judgment creditor the benefit of a security that the judgment creditor did not itself see fit to obtain in its own business with the judgment debtor. That, in my judgment, would be totally unfair, and would render normal banking business in this area extremely hazardous. To put this in legal language, the garnishee is entitled to the immediate rights to the money on deposit in equity. Any rights that the judgment creditor may have to recover its debt from that money must rank after that of the garnishee. The order to which the judgment creditor is entitled must take this ranking into account.

8. Miss Cruden has argued all that could possibly be argued on behalf of the judgment creditor, and there are undoubtedly some judicial pronouncements that favoured her case. But they are not binding on me, and in so far as these dicta tell against the conclusion mentioned above, which I feel is just and reasonable, I decline to follow them.

9. Accordingly, it is ordered that any money accruing due to the judgment debtor from the money held on deposit by the garnishee to the extent of the judgment debt, less the sum of $148,134.12 already paid, together with interest and costs, shall be paid to the judgment creditor. For the avoidance of doubt, I say that by "accruing due to the judgment debtor" I mean accruing due to it so that it would otherwise be entitled to claim the money, or otherwise exercise rights over it.

10. As to costs, it seems, on the face of it, that the garnishee has largely succeeded it what it set out to do; that is, to secure its own position, and is entitled to its costs. I make an order nisi that the judgment creditor do pay the garnishee's costs.

(J.K. FINDLAY)

Judge of the High Court

Representation:

Miss Liza Jane Cruden, instructed by Messrs Solomon C Wong & Co, for the Judgment Creditor.

Mr YC Mok, instructed by Messrs YT Chan & Co, for the garnishee.