Case Document

100%Judiciary

HCA 2158/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2158 OF 2009

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BETWEEN

	ARTHUR ANTONIO DA SILVA	1st Plaintiff
		(1st Judgment Creditor)
	BETTY DA SILVA FEI PO KI	2nd Plaintiff
		(2nd Judgment Creditor)
	and
	GABRIEL RICHARDO DIAS-AZEDO	1st Defendant
		(Judgment Debtor)
	GRANT THORNTON (a firm)	2nd Defendant
		(Garnishee)

____________

Before: Deputy High Court Judge Carlson in Chambers

Date of Hearing: 1 June 2010

Date of Judgment (Handed Down): 7 June 2010

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J U D G M E N T

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Introduction

1.This is the resumed hearing of an application by Mr and Mrs da Silva (the judgement creditors) for an order to make absolute a garnishee order nisi.

2.The garnishee is the firm of Grant Thornton of whom the judgment debtor Mr Dias-Azedo was senior partner.

3.This matter first came before me on 23 February last and by a judgment handed down on 3 March I adjourned the application to 1 June to allow time for Grant Thornton to:

“prepare(d) its final version of the relevant partnership accounts or, at the very least, a credible and verifiable account as between the partnership and Mr Azedo …” [para.10 – judgment 3 March 2010].

4.The history to all of this can be followed from my previous judgment and so I do not propose to repeat this here save to say that Grant Thornton’s then latest accounts showed that an amount of HK$5.5 million was owing from it to Mr Azedo. It is this balance which prompted Mr and Mrs da Silva to bring these garnishee proceedings.

What Has Happened Since 3 March

5.So far as Grant Thornton is concerned this appears in the second affirmation of Mr Alan Tang who is one of its partners. The affirmation is dated 31 May 2010 and so it is very recent. In terms of the partnership accounts its fair to say that not very much has happened. This is what he says at paragraphs 7 to 10 of his affirmation:

“Partnership accounts

7.

Notwithstanding the time graciously granted by his Lordship.  Grant Thornton is not able to finalise its accounts for the 2007/08 year and consequently also the 2008/09 year.  This is because under the accounting approach that Grant Thornton presently adopts, where there are known contingencies that, depending upon their outcome, might have an effect on transactions recorded in the accounts, they cannot be closed.  The known contingencies are:

7.1

Disputes between Grant Thornton and a number of former partners (some of which are now subject to litigation);

7.2

Disputes between Grant Thornton and another member firm of Grant Thornton International in respect of, inter alia, the payment of salaries of persons seconded to Hong Kong and the PRC from overseas;

7.3

The outcome of further claims, that are yet to be determined and quantified, by Grant Thornton against the 1st Defendant in respect of his misconduct as managing partner of the firm;

7.4

Claims of Grant Thornton against the 1st Defendant for contribution and indemnity in the event that judgment is given against the firm in these proceedings and those brought by Ms Gardner.

8

Regrettably, Grant Thornton is not able to quantify these matters until they run their respective courses and therefore cannot finalise the accounts.  As and when each of these matters is resolved the relevant adjustment can be put into the accounts.  However, as matters stand the issues have not crystallised and therefore cannot be included in any reckoning of the amounts due to or from the 1st Defendant as at 6 January 2010 (which I understand is the relevant date).

9

Although the accounts cannot be finalised or closed, Gary James, Partner of Grant Thornton, has prepared the exhibited ‘Certificate of Balance’ which I believe accurately sets out the known financial position between the 1st Defendant and Grant Thornton as at 6 January 2010.

10

The Certificate of Balance shows that the amount owing from the 1st Defendant to Grant Thornton as at 6 January 2010 was HK$2,596,347.  As and when the above contingencies are resolved, the balance owing from the 1st Defendant is expected to increase further.  Needless to say, Grant Thornton is not indebted to the 1st Defendant.”

The certificate is in this form:

“Certificate of Balance

Re: Gabriel Azedo (‘GRA’)

HK&

Balance as of 1 April 2007 to the credit of GRA

14,011,265

Add: Pro-forma share of net profit for 2007/8

5,104,236

Deduct: Drawings for 2007/8

(3,510,000)

Deduct: Transfer to other equity partners

(1,000,000)

Balance as of 1 April 2008 (date of retirement)

14,605,501

Add: Interest from 1 April 2008 to 2 October 2008 (Note)

370,139

Deduct: Payment made on 2 October 2008

(8,575,487)

6,400,153

Add: Interest from 3 October 2008 to

380,800

6 January 2010 (Note)

Balance as of 6 January 2010

6,780,953

Deduct: Judgment debt payable to Grant

(9,377,300)

Thornton by GRA

Balance as of 6 January 2010 owning by

(2,596,347)

owing by GRA to GTHK

Note:  Interest accrues on a reducing balance basis at 5% p.a. simple.

Caveat:  These figures do not include further potential claims that Grant Thornton may have against GRA in respect of his conduct as managing partner of the firm.

31 May 2010

For Grant Thornton”

It is signed by Mr James the responsible partner. Based on this Mr Harrison, on Grant Thornton’s behalf, submits that Mr and Mrs da Silva have failed to show that there is a debt owing to Mr Azedo — in fact the contrary is true to the extent of nearly $2.6 million. This being so these garnishee proceedings are simply incompetent and should stand dismissed.

6.In relation to this account, I should draw attention to the fact that since the hearing in February, Grant Thornton had issued a writ against Mr Azedo [HCA 433/2010] upon which judgment in default of appearance was obtained on 30 April 2010 which is reflected in the account on the basis that it is a matter which falls to be set-off against any amount that it owes to him.

7.In relation to the partnership accounts, Mr Tang has explained why these have not and cannot be finalised simply because there remain, and this likely to be the position for sometime yet, uncrystallised and contingent matters as between the partners, nevertheless, this does not change the position as between Grant Thornton and Mr Azedo as at 6 January 2010 which shows that it owed him $6,780,953. From this figure, the judgment has been deducted leaving him owing it, in round figures, $2.6 million.

8.Another feature which is to be taken into account is a bankruptcy petition against Mr Azedo issued by Mrs Angela Gardner, she having obtained judgment against Mr Azedo for USD (and not HKD as mentioned in my judgment of 3 March 2010) $9,756,879.63. If a bankruptcy order is made then all actions, including this one, will be stayed. In such circumstances, Mr Harrison submits that if I am not minded to dismiss the garnishee proceedings, I should not make the present order nisi absolute but adjourn the application generally to await the outcome of the bankruptcy petition which at present stands adjourned awaiting a date for its hearing which is to be contested by, for the moment at least, Mr and Mrs da Silva. To make the order absolute would have the effect of preferring one creditor of Mr Azedo over the other creditor which would not be the right thing to do.

The Application to Make the Present Order Absolute

9.Mr Fung SC, in a series of trenchant submissions, says that notwithstanding the fact that the court had on 3 March extended Grant Thornton an indulgence to get its accounts up, an order made in the expectation that this would be the case, it has done nothing. The position is as it was and all that has happened is that it has obtained a judgment in default against Mr Azedo which has the effect of producing a negative balance on his account.

10.Mr Fung submits that this is simply not good enough and where Grant Thornton has failed to do what had been expected of it, in circumstances that these accounts are now long overdue, I should ignore what has been prepared and signed by Mr James, who has not even gone on affidavit to verify the account, leaving it to Mr Tang to give a second-hand account. He submits that I should find that there is a debt owing as it was before Master Yu when he made the order nisi and therefore make the order absolute which will, at least, provide some relief to Mr and Mrs da Silva who are perfectly innocent in all of these matters and who have obtained a perfectly good judgment against Mr Azedo which remains outstanding.

11.I agree entirely with Mr Fung’s description of Mr and Mrs da Silva’s position which is made worse by the fact that they have been let down by someone who had been a life-long friend. They are of course completely above board and much sympathy is due to them. Nevertheless, such plaudits, absent the return of what is owed to them, must ring very hollow.

12.In relation to the inability of Grant Thornton to produce finalised accounts, although regrettable in these circumstances, I accept Mr Tang’s explanation about why this is so, as I do his explanation that the position between it and Mr Azedo is now likely to remain as is shown in the account that Mr James has signed-off on. Whatever the uncrystallised and contingent items which prevent the practice from producing a final account at present, the fact remains that one will never get to a position where Grant Thornton will owe Mr Azedo anything on the partnership accounts between the practice and its partners. If anything, the likelihood is that he will owe it more if only due to the incidence of interest running on the judgment debt.

13.This being the position about which I am satisfied, Mr and Mrs de Silva are simply in no position to show that there is a debt owing by the garnishee to the judgment debtor into whose shoes they can step into and obtain payment. I find as a fact that this situation will not change and that the final accounts, whenever they may be prepared, will not alter this fact. Accordingly, I propose to dismiss these proceedings where no further purpose can be served in further adjourning them.

The Bankruptcy Petition

14.Where I have dismissed the garnishee proceedings, the existence of this petition is of no consequence. Nevertheless, I ought to say that had I been obliged to take the petition into account in circumstances where I was not persuaded to dismiss the garnishee proceedings, I would have adjourned these proceedings to await the outcome of the bankruptcy petition. Mr Fung submits that Mrs Gardner is showing no appetite to proceed with it but the fact is that it is due to be fixed for a contested hearing regard being had to the availability of counsel. I would have waited to see the outcome of that petition which at this stage I could not ignore given that to make the garnishee order absolute would have preferred Mr and Mrs da Silva over the other creditor or creditors, if Mrs Gardner is not the only other creditor. Mr Azedo’s indebtedness is much greater to her than it is to Mr and Mrs de Silva.

Costs

15.Whilst I have much sympathy for Mr and Mrs da Silva, the fact is that costs will have to follow the event on this application which will include the costs previously reserved. This will be an order nisi.