Dignity Carriers Inc. v. John a. Kistvad

HCA011466/1982

Order 44A - non resident foreign debtor - observations upon the problems of abuse - non disclosure - limited means and conflict of laws.

IN THE SUPREME COURT OF HONG GONG

HIGH COURT

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BETWEEN

Coram: The Hon. Mr. Justice Hunter.

Date: 10 January 1983

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JUDGMENT

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1. At about 1 p.m. on Tuesday, 30th November 1982, I ordered a warrant to issue for the arrest of the defendant under 0.44A r.2. Later that afternoon, the defendant appeared before me in person. I had the difficult and unattractive task of explaning his predicament to him. On the surrender of his passport, I ordered his release and adjourned the matter to 2nd December. Then after hearing oral evidence from the defendant and from a Mr. George Chao for the plaintiff, I discharged the warrant. I gave brief oral reasons for this decision stating that I would put my reasons in writing in more detail. These reasons I now give.

2. The facts on affirmation before me on 30th November were basically simple. The defendant, a Dane usually resident in Copenhagen, had on 14th June 1982, by letter addressed to the plaintiff, guaranteed the performance by a Liberian company called President Maritime Inc. of its obligations under a charter party dated 13th May 1982. These charterers had committed serious defaults under this charter party including non-payment of hire totally over US$230,000. Other alleged breaches took the potential liability higher. By telex dated 17th November the plaintiff demanded payment of this sum under the guarantee. By his telexed reply of the same date the defendant did not dispute his liability. He repeated what he had asserted he had said when he gave the guarantee, namely that he had no assets outside his company and they were in deficit to the tune of 3 million Danish Kroner. The affirmation continued that the defendant had arrived in Hong Kong on Sunday, 28th November to discuss the matter. Discussions had taken place on the proceeding day, the Monday, and no agreement had been reached. The defendant, it was said was due to leave Hong Kong at 16.45 hours that afternoon.

3. Mr. Ma for the plaintiff's company submitted that on these facts and upon the authority of the decision of the Court of Appeal, given on 26th November 1982 in Kirpalani v. Days International Limited, Civil Appeal No. 146 of 1982 he was entitled to an order. I accepted that submission. By that decision the Court of Appeal decisively rejected the view that 0.44A does not normally apply to the visiting foreigner who was not ordinarily resident in Hong Kong. The court made it clear that upon facts like those affirmed before me, the plaintiff was entitled to relief under this Order.

4. A contrary view, had I think, first been advanced by Sir Francis Piggott C.J. in Sun Ming Shan v. Moran 1910 5 H.K.L.R. 216 at p.225. I had not understood it to turn upon any narrow reading of the word "leave" in the predecessor to 0.44A r.2 as seems to have been argued in Kirpalani, but rather upon the word "likely". On the facts before me the argument would have gone something like this. When the plaintiffs pressed for and obtained this guarantee on 14th June, they knew that they were dealing with a Dane whose assets were in Denmark not in Hong Kong. The chances of enforcing the guarantee in Hong Kong in the event of default were then almost non-existent. There was no provision for reciprocal enforcement of judgments between Hong Kong and Denmark. There would be no purpose in suing in Hong Kong at all unless in some curious way it was easier to sue in Denmark on a Hong Kong judgment than upon a written guarantee. The plaintiff would therefore have expected to have sued the defendant in Denmark and then sought to levy execution upon his assets there. Only if the defendant should have happened to have come to Hong Kong could Hong Kong's unusual facilities for personal execution be brought into play at all. As he was ordinarily resident elsewhere the likelihood of this was small. A brief visit did not alter this. In reality if the debtor was permitted to leave the creditor would simply be in the same position as when he had started: whereas if he were required to stay it was the creditor who was being enable to convert a remote possibility into a certainty.

5. But this view was decisively rejected in Kirpalani. All the judges ignored the past and the probabilities of Hong Kong execution before the alleged debtor's visit. They looked only to the present and to the future. When actual presence was taken as the starting point any departure by the foreigner and any return to the pre-existing position obviously affected the creditor. The rule of procedure thus operated with particular and selective vigour against the foreigner and to the advantage of the local creditor. The latter was able to convert an unsecure foreign debt into something close to a local secured debt. This the court emphasised was a right given to the creditor under this rule. My views on this rule are as unprintable as they are irrelevant. Unless and until relieved of the obligation by the intervention of the Rules Committee, the legislature, or the Court of Human Rights, I must give effect to it and to this right. I accordingly made the order.

6. The additional background facts as I found them, which emerged in evidence on 2nd December can be summarised as follows:

7. The facts relating to the defendant's particular visit to Hong Kong as I found them were:

8. In these circumstances I had no hesitation in discharging the warrant on the evidence as to the defendant  means alone. I think that the defendant was wholly frank and truthful both to the plaintiff and to  the court, and that he had nothing with which to discharge his obligation under the guarantee. But the plaintiff prefered not to believe him. They hoped to use this "coercive" rule to squeeze out of the defendant some advantage for themselves, no doubt before Mr. Petersen or the bank could intervene. But having no assets available for this purpose, the defendant's departure could in no way impede or delay any execution.

9. I would have left the matter there with my brief oral reasons had this application not revealed a number of problems arising in the exercise of this jurisdiction following the Court of Appeal's decision in Kirpalani. I have therefore had the temerity to add to the numerous obitor dicta on this subject, so that others might at least know how I would be minded to answer some of these questions in the future should the need arise..

10. At page 4 of the report of Kirpalani before me, Cons J.A. observed: "The judges who apply the order are capable of dealing with any possible abuse". He gives no indication as to what he would regard as an abuse, or how and by what standard its existence is to be measured. My initial predisposition was to say that given a rule in these terms a plaintiff can, have resort to his "rights" thereunder in any way he wished. You cannot judge such a rule, or abuse of such a rule, by current standards of commercial propriety. You cannot judge by today's standards what Piggott C.J. described as "barbarous" seventy years ago, any more than you can sensibly  discuss human rights with some modern Spanish Inquisitor. You cannot civilise an uncivilised rule without emasculating it.

11. But upon reflection I think that this approach must be wrong. The Court of Appeal has rejected Piggott C.J.'s view as a whole. It has held that this rule gives important sensible advantages to litigants in Hong Kong, which are appropriate and relevant in 1982. These advantages are in many senses peculiar not least in being unilateral. The Hong Kong creditor may seek to imprison his visiting Danish debtor without himself being exposed, as far as I am aware, to any such risk either in Denmark or in Western Europe. Furthermore this defendant's total surprise and horror at his arrest on 30th November was I think typical. Few, if any, European debtors would contemplate the risks they run the moment they set foot in Hong Kong. What standards of behaviour, of disclosure, of good faith and fair dealing are proper to be attributed or applied to persons in such wildly disparate situation?

12. It seems to me that if the word "abuse" is to be given any contemporary meaning, it must at least impose upon the creditor an obligation to be fair and frank. The debtor must not be misled he must not be deceived: He must not be persuaded or enticed to come to Hong Kong, or threatened with serious consequences if he fails to do so, without the risks of his coming, the risks of his incarceration being revealed to him. Anything else in my view is the plainest deception. With such knowledge the debtor can then, if he wishes, decline to enter into discussions under duress and with the threat of indefinite imprisonment hanging over his head. He can bargain with his creditor for a promise not to use this power and in default simply refuse to come. It may be objected that this obligation detracts from the efficacy of this remedy. But in my view, it is the least that can be required to avoid abuse in modern commercial life.

13. At pages 6 and 7 in the report of Kirpalani, Cons, J.A. emphasised the value of Order 44A as an aid to discovery, and envisaged the possibility of a debtor showing cause by pre empting "the need for orders under 48 or 49B by sufficient disclosure". This is what may be said to have happened in this case. My findings of fact above set out were very largely based upon the documents.

14. This brings me to the question of disclosure. Applications under order 44A are made ex parte. An applicant coming ex parte to the court is under an obligation to put before the court all information known to him which is relevant to his application. I have already observed that a warrant in this case was quite unnecessary. I was not satisfied on the evidence that the plaintiff knew that the defendant had successfully postponed his flight for two days before they made their application. I was satisfied that they had asked him to do so and that he had not refused but had said he would try to arrange it. Has this fact been disclosed to me I would not simply have ordered a warrant with further inquiry. Likewise I had no idea when making the order, that moments before this defendant had arrived at the plaintiff's office with important documentary information in answer to their request. This appointment, this request, and the fact that the defendant had produced his audited group accounts the previous day were never disclosed to me. I think they should have been, because from the outset this defendant had not disputed his obligation and had only setup lack of means. Further I found it very distasteful for a party with one hand to use the court to imprison his debtor, whereas with the other he is apparently negotiating in a civilised manner over luncheon. Therefore I think that on this ground also I would have been entitled to have refused the plaintiff relief.

15. On the undisputed facts "any sum" for the purposes of O.44A r.3(3) could not possibly have been assessed at less than US$200,000. There was not the remotest possibility of the defendant being able to find sureties for this sum. A debtor can, I think, clearly show cause under r.3(1) by proving that he has nothing. If there is nothing to execute on, his departure makes no difference. But it is much less clean that he can show cause by proving that he has something, but that this something falls far short of "any sum". This might have been the position here had the US$83,000 fund in New York been unencumbered and available to the defendant personally. Unless I could have had regard to this limit at the stage of showing cause, and found that he had shown cause above US$83,000; I would have been compelled by the mandatory "shall" in rules 3(2) and (3) to order the impossible. This prospect was rejected out of hand by the Chief Justice in Moran at page 223. I think I am entitled to say that the observations in Kirpalani on this are not sufficiently clear to require a judge to ignore limitation of means at the showing cause stage. Unless unequivocally directed to the contrary, I will not make an order resulting in the indefinite imprisonment of a debtor such as this defendant, because I am convinced that such order in Western European's eyes would serve to heap contempt on Hong Kong's laws and ridicule upon its commercial aspirations.

16. The problem does not end there. Once applied to a foreigner, the Order must strike with particular severity. In a typical situation, the foreigner will have no assets within the jurisdiction. Personal execution is likely to be the only form of execution ever available. Once trapped here by arrest, the foreigner would have to import assets. But these assets must themselves be subject to some foreign law e.g. the Law of the debtor's residence or domicil; the lex situs; or the proper law of the relevant contract. One or more of these laws may apply antecedent restrictions, e.g. exchange control or, as here, the Danish equivalent of fraudulent preference in bankruptcy. Thus if available assets had existed in Denmark, it seems to me that a creditor such as the bank might well have been able to have prevented their transfer through the intervention of the Danish courts. Foraign Law might equally be used to set aside any transaction ordered by way of security, especially one intended to operate in the future. For example if this court were to order a debtor, by way of security, to assign or charge a future debt payable in the U.K.; one cannot by any means exclude the possibility of a U.K. judge ruling the transaction to be void for duress, and holding that in the absence of mutuality comity did not require him to respect the decision of the Hong Kong court. The effect of this rule is to give the creditor a pre-judgment advantage, not simply by way of restraint as in the case of a mareva injunction, but by way of security. It is not very obvious to me why a foreign court should readily allow a Hong Kong creditor to jump the queue in this way to the possible detriment of its own citizens. It is more likely to strain to defeat it.

17. It may well be therefore that if this court is to avoid the twin perils of indefinite imprisonment and conflict of laws, the practical application of this rule to foreigners may be confined to those few (if any) who possess negotiable convertible assets which can readily be brought here.

Representation:

Mr. G. Ma instructed by Messrs. Johnson, Stokes & Master for Plaintiff.

Mr. John Bleach instructed by Messrs. Richard Butler for Defendant.