Antares Llc v. Vallat Maurice Henri Roland and Others

DCMP3403 /2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS ACTION NO. 3403 OF 2003

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BETWEEN

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Coram:  Deputy District Judge S. T. Poon in Chambers

Date of Hearing: 18^th May 2006

Date of Handing Down Decision: 1^st June 2006

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D E C I S I O N

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Background

1.This is an application for security for costs.

2.The background of this case is not without complexities.  Mr. Vallat (“D1”), a former employee and director of Phoenix Telecommunication Limited (“D3”), obtained a Judgment at the Labour Tribunal against D3 for a sum of HK$592,131.65 with interest and costs.  He commenced execution of the Judgment at the District Court and obtained a garnishee order nisi against Dragon Investment Company II LLC (“D2”) for a debt owed by D2 to D3.

3.D2 is a shareholder of D3.  D3 commenced an action in High Court in February 2002 to prevent D2 from presenting a winding up petition against it.  The debt represents the cost order against D2 in favour of D3 in the High Court proceedings. The amount involved is HK$646,243.67.

4.Antares LLC (“P”) is a majority shareholder of D3 and is controlled by an individual shareholder of D3 and her husband. 

5.Before the garnishee order nisi became absolute, P took out a summons as an intervener seeking to set aside the garnishee order on the ground that the debt had been assigned to them by D3.

6.Meanwhile, D2 also sought to set aside the garnishee order saying that they have a valid counterclaim against D3 well exceeding the debt and hence there is no debt payable.

7.The hearing for garnishee order absolute was heard before HH Judge Muttrie.  At the hearing, P also applied to the learned Judge for a declaration that the debt has been validly assigned to P by D3.  On the other hand, D1 maintained that the assignment was a sham with a view to avoiding execution of D1’s Judgment against D3.

8.The learned Judge found that the circumstances under which the debt was assigned was suspicious and refused to make the declaration sought by P.  Nevertheless he ordered that the garnishee order be set aside on the ground that there is a counterclaim of D2 against D3. 

9.Dissatisfied with the Learned Judge’s decisions, P appealed to the Court of Appeal.  D1 did not.

10.The Court of Appeal (Yeung JA, Burrell and Sakhrani JJ.) held that the issue as to whether the debt was validly assigned should be determined first for resolving the disputes between parties and this issue cannot be determined without a trial proper being held.  However, as D1 did not appeal to the learned Judge’s order, the Court of Appeal did not overrule the order made below but clarify that the garnishee order was set aside without prejudice to D1’s right to re-apply.  The appeal was held to be dismissed and P was ordered to pay half of D2’s costs in the appeal.

11.Apart from the above findings, the Court of Appeal also invited parties to seek directions from it for future proceedings of the matter.  Upon such invitation, P wrote to seek directions and the Court of Appeal directed, as proposed by P (except (b) below) that :-

(a) Anatres do file a Statement of Claim in DCMP 3403 of 2003 against Vallat and Dragon. 

(b) Antares be referred to as the Plaintiff.  Vallet and Dragon be referred to as the 1^st and 2^nd Defendants respectively;

(c) Vallet and Dragon do file a Notice of Intention to Defend and Defence(s) within 14 and 28 days thereafter respectively;

(d) Antares do file a Reply within 14 days thereafter;

(e) The parties do file lists of documents within 28 days thereafter;

(f) There be inspection of documents within 14 days thereafter; and

(g) After (a) to (f) are completed, the parties seek further directions in the District Court as to witness statements (if any) and trial.

12.In the letter seeking directions from the Court of Appeal, P also proposed that D2 should be directed to pay the amount of debt into court and that the allocutur of costs against P be stayed.  However, the Court of Appeal refused to accede to these proposals on the ground that “[t]hey are not matters relating to the validity of the assignments.”

13.P filed the Statement of Claim on 9^th May 2006, also naming D3 as the 3^rd Defendant. Apart from the usual “Further and/or other relief” prayer, the only relief sought under the Statement of Claim is a declaration that D3 had validly assigned the debt to P.

14.As P is a foreign company, D2 asked for security for costs and hence the present application.

Discussions

15.P opposed the present application on the grounds that :-

(a) Order 23 rule 1 does not apply in that this is merely an interlocutory proceeding within a garnishee order application and there is no determination of substantive rights and liabilities between P and D2 in this claim;

(b) P does not assume the role of an attacker in substance nor is D2 a defender.  There is no substantial relief sought against D2; and

(c)  P’s chances of success in proving that the assignment was valid are high.

16.Mr. Maurellet, counsel for P, submitted that D2 has no interest in the present relief that P is seeking.  He also put much emphasis on the merits of P’s case.  He submitted that D2 had been taking a neutral position as to the validity of the assignment. There is not much that D2 can do to prove that the assignment was mala fide.  On the other hand, there is evidence from Mr. Cooper who made an affirmation to prove the contrary.

17.Mr. Manzoni, counsel for D2, submitted that the Court of Appeal did not order the commencement of the present action, it is commenced on P’s own volition.  He submitted that the Court of Appeal had decided who is the attacker by giving the directions as to who should be the plaintiff.  As to merits, he stressed that the Court should not consider it relevant in this kind of application unless it is overwhelmingly favourable to the plaintiff.

18.I agree with Mr. Manzoni.  Although the Court of Appeal had indicated a proper way to conduct future proceedings of the present case, the garnishee proceeding, being the subject matter of the present case, had been determined and there was nothing left for the court to resolve but for P seeking directions from the Court of Appeal for future conduct.

19.Besides, P is seeking a declaratory relief that binds at least the defendants if granted.  P had the liberty to not joining D2 in the action.  It is now not open to P to say that the relief does not affect D2’s interest because if it is so, D2 should not be joined in the first place. 

20.Furthermore, the declaration sought clearly affects D2’s interest.  D2 is the debtor of the subject debt and it alleges that there is a counterclaim to set the debt off.  There will at least be a potential dispute as to whether D2 can raise the counterclaim against an assignee should the court rule that the assignment was a valid one.

21.As regard the merits of P’s claim, I agree that D1 and D2 face a certain degree of difficulty in proving that the assignment was a sham or mala fide.  However, I also share the concern of HH Judge Muttrie and the Court of Appeal in relation to the circumstances upon which the debt was assigned, the suggestion of improprieties was not just a bare allegation, it is open to the court to infer improprieties in the circumstances.

22.I am not persuaded that P’s case is so strong that I should exercise my discretion not to order security for cost against P who is a foreign company.

Quantum

23.D2 asks for HK$690,000 as security.  I agree with Mr. Maurellet that the amount is excessive.  The issue relating to the relief sought is a simple one.  D2 cannot demonstrate what more they can do apart from relying on D1’s evidence.  It is not appropriate for this court to consider the history of the parties’ litigations and speculate that there would be similar satellite litigations in the present case.

24.I am of the view that 1/3 of the amount requested is reasonable.

25.I order that P shall give security for costs for D2’s costs in this action by payment into court of HK$230,000 pending which all proceedings brought by P against D2 be stayed.

26.I make a cost order nisi that costs of this application be to D2 in any event to be taxed if not agreed, with certificate for counsel.  This cost order nisi shall be absolute after 14 days.

Mr. Jose Maurellet instructed by Messrs Barlow Lyde & Gilbert for the Plaintiff.

Mr. Charles Manzoni instructed by Messrs Boase, Cohen & Collins for the 2^nd Defendant.