Wincheer Investments Ltd and Others v. Lobley Co Ltd and Another

IN THE COURT OF APPEAL

1997, No. 111
(Civil)

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Coram: Hon Nazareth, V.-P., Wong and Keith, JJ.

Date of hearing: 14 October 1997

Date of judgment: 14 October 1997

Date of handing down reasons: 29 October 1997

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REASONS FOR JUDGMENT

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Nazareth, V.-P.:

1. This is an appeal by Tsang Yuk-kiu, the 3rd plaintiff and judgment creditor ("the appellant") against the order of Sears J made on 2nd May 1997 rescinding a charging order absolute made by Master Jennings on 20th February 1997. The charging order charged a sum of HK$1,100,000 that had paid into court pursuant to an order made by Godfrey JA, in circumstances to which I shall come.

2. As will be seen, the facts are now of rather more limited relevance than they originally were. Nonetheless it is of assistance to outline the background. The appellant controls a minority of 40% of the shares in the defendant companies ("the companies"). The other 60% are controlled by Mr Lucas Sasmito and his uncle. Mr Sasmito and his wife are "the intervenors". In January 1996 Sears J awarded substantial damages to the appellant in the appellant's suit against the companies. The companies' appeals were dismissed by the Court of Appeal in October 1996 and the Privy Council in May 1997. Of the amounts awarded (over $52 million to the 1st defendant company and $85 million to the 2nd defendant company) more than $35 million and $66 million, respectively, remains outstanding.

3. It was in the context of the appeal by the companies to the Court of Appeal that Godfrey JA ordered the amount of $1,100,000 to be provided as security by the companies for the costs of their appeal. This was paid into court in September 1996. In dismissing the appeal on 3rd October 1996 the Court of Appeal made an order nisi that there be no order as to costs. On 9th October 1996 the appellant applied for a charging order over the funds in court. On 18th October 1996 Master Jennings made the order nisi applied for.

4. On 12th February 1997 the intervenors took out a summons claiming that the beneficial interest in the funds in court belonged to them and not the companies. Master Jennings rejected the intervenors' contention and made the charging order absolute on 20th February 1997. The intervenors and the companies thereupon appealed to Sears J who, as I have said, allowed the appeal. He did so upon the basis that the intervenors' advance of the amount of $1,100,000 to the companies constituted a "Quistclose" trust (see Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567). Such a trust upon failure of the primary purpose of meeting the costs would result in a secondary trust in favour of the settlors or donors i.e. the intervenors. Although he discharged the charging order, Sears J did not make any order for payment out of the money. His order was perfected on 14th May 1997 and on 27th May 1997 the appellant filed his Notice of Appeal. On the following day, 28th May 1997, the companies' solicitors obtained payment out of the funds deposited in pursuance of an order made by Master O'Donnell upon their written application with the consent thereon endorsed of the intervenors' solicitors. However, the appellant's solicitors were not notified and only became aware of the payment-out from the intervenors' skeleton argument on the eve of the hearing of this appeal, i.e. 13th October 1997. The skeleton also revealed the intervenors were taking as a substantial point the reality that the funds were no longer in court.

Propriety of the payment out

5. To meet that point, Mr Robert Kotewall SC who, with Miss Maria Yuen, appeared for the appellant, submitted that the payment-in had been ordered by the Court of Appeal and only that Court could order payment out; that the master's order was accordingly devoid of effect, having been paid out of court by mistake of law; and that this Court has inherent jurisdiction to and should order the amount to be repaid into court by the person to whom it has been paid [Gainsborough Mixed Concrete Ltd v Duplex Petrol Installations Ltd[1968]1 WLR 1463].

6. Mr Raymond Faulkner SC who appeared with Mr Allen Yau for the intervenors, and Mr Christopher Smith for the defendant companies resisted those contentions.

The two issues addressed

7. It seemed to us from Mr Faulkner's helpful skeleton argument that there were two issues which could have a decisive effect upon the appeal and obviate the necessity for addressing the arguments and numerous authorities submitted by both sides in relation to the question of the existence of a "Quistclose" trust. These were:

(1) whether the order of Master O'Donnell for payment out of the monies was valid; and

(2) whether Sears J would in the exercise of his discretion in any event have discharged the charging order, i.e. even if he had held there was no "Quistclose" trust.

8. Accordingly we invited counsel to make submissions upon those two matters as preliminary points. Having heard counsel, we dismissed the appeal and now give our reasons.

Validity of the payment-out order

9. It is common ground that there is no specific provision authorising or regulating the making of an order authorising the payment-out of monies paid in specifically as security for costs. Mr Kotewall argues that in those circumstances it would be O22 r8(2), as the next provision most closely bearing upon it, that would regulate the position. The money here was clearly paid into court under an order of the court i.e. the order made by Godfrey JA. Accordingly Mr Kotewall submitted that it could not be paid out except in pursuance of an order of the court, which must mean the Court of Appeal constituted by at least one judge. Mr Faulkner pointed out that O22 is concerned with the payment into court of money in satisfaction of the cause of action and not security for costs. That would seem to be right, at any rate in relation to rules 1 to 7 which appear to me to be concerned with payment into court of sums of money referred to in r1(1), i.e. in satisfaction of the cause of action. However, rule 8 commences in para. (1) with reference to payments into court "under an order of the Court or a certificate of a master." It could conceivably be argued that these words import a qualification of payments into court of sums of money in satisfaction of a cause of action and thus include only such payments in as are made under the order of the court or a certificate of a master. If that were accepted Mr Kotewall's argument here would fail. Assuming that Mr Kotewall is right, it then becomes necessary to consider whether the "order of the Court" could be made by a master.

Plainly, rr1-7 of O22 apply to payment-in of the nature mentioned in r1, i.e. made "in an action for a debt or damages in satisfaction of the cause of action". Payments-in as security for costs would accordingly not fall within their scope. However, Mr Kotewall relied upon O22 r8(2). It is suggested that, whereas rr1-7 may have the effect mentioned, r8 plainly and expressly applies to all payments-in made under "an order of the Court". Given that all seven preceding rules applied to payments-in of the nature mentioned in r1, there seems to me to be some implication or presumption that such application is continued in r8, notwithstanding that it could easily be displaced by unequivocal words to the contrary. But there are no such words. On the contrary, the provision referring to r1 in r8(3) is not only consistent with such continued application, but supports it in some degree. Furthermore, it can be seen that any conflict between diverging constructions of the two rules can be harmonised by the words "under an order of the Court" in r8(2) being recognised as merely a qualification of what r1 provides; i.e. in effect a payment into court in any action for a debt or damages in satisfaction of the cause of action "under an order of the Court". This, it seems to me would be the right construction of r8, as it gives effect to both rules. Mr Faulkner seeks further support for this construction from r3(4) of the High Court Suitors' Funds Rules in which mention is made inter alia of money "lodged in satisfaction or part satisfaction of any claim" or "lodged to security for costs" and which requires the receipt to contain a statement of those two and other circumstances there specified. If any support can be so derived, I do not think that it would be significant.

10. Be all that as it may, Mr Kotewall appears also to contend, independently of r8(2), that if it is the Court that orders payment-in, then it should be that Court that must order payment-out. While there seems to be, at first sight, something in that submission, the conclusion contended for is not necessarily warranted. In any case the submission fails upon a different aspect, notwithstanding that in my view it has not been demonstrated that a master or deputy registrar of the High Court has power to make an order for payment-out on behalf of the Court (or indeed that he has not).

11. The payment-in upon the order made by Godfrey JA was to "lodge in Court security for costs for the Plaintiff's/Respondent's costs of the Defendant's/Appellant's appeal from the judgment of the Hon Mr Justice Sears dated 10th January 1996 in the sum of $1.1 million, and that such security be given ...". When the appeal was dismissed in the Court of Appeal with "an order nisi that there be no order as to costs" which became absolute, that in my view in the particular circumstances was in effect an order by that court for payment-out. Upon the order that there be no order for costs, there could not conceivably upon those facts be any further justification for the continued retention of those funds in court. In ordering payment-out upon a letter written by the defendant companies' solicitors, Master O'Donnell was simply by administrative action giving effect to the order of the Court of Appeal. No further or formal order of the Court was required. I accordingly reject Mr Kotewall's submission on the point. It means, as he rightly conceded, that the appeal must fail, for what it seeks is an order for repayment of the money into court so that a charging order upon it can be made.

The discretion point

12. I turn then to Mr Faulkner's point that even in the absence of a "Quistclose" trust, the charging order would, as the judge stated, in any event have been discharged in exercise of the judge's discretion, with which there is no good reason to interfere. Mr Kotewall's response, as I understand it, is that the court cannot safely rely upon the judge's statement that "even were I in any way persuaded, which I am not, that there was any beneficial interest, and if this did turn on discretion, I would have exercised my discretion against the judgment creditor here" as indicating a proper exercise of discretion. He submits that inevitably in the circumstances the judge would have been influenced by his conclusion that by reason of a "Quistclose" trust the defendant companies had no beneficial interest.

13. I am unable to accept that submission. Judges become accustomed and well able to address matters, like the exercise of discretion, upon different hypotheses. Notwithstanding the judge's virtually concluding words "nevertheless this sum of moneys has never been theirs [the companies]", there is in my view no reason here to doubt that general position. There were, of course, matters before him upon which the judge could properly exercise his discretion in the way he did. It seems to me, therefore, upon the discretion point also, the appeal must fail.

Conclusion

14. Upon both issues, therefore, the appeal fails.

Companies' solicitors' conduct

15. Before I leave the matter, I have to say that it seems to me at first blush that the defendant companies' solicitors' failure to notify the judgment creditor of their intention to apply for the payment-out of the money, coupled with the consent endorsed upon their letter of only the intervenors' solicitors, their allies rather than their foe, was highly questionable to say the least. As the solicitors should have known, it would have appeared to the master that both of the contesting parties had consented. Moreover, it should have been apparent to the companies' solicitors from the Notice of Appeal that the judgment creditor continued to be under the impression that the monies were still in court. The solicitors' explanation given through Mr Faulkner was that in the light of the judgment creditor's solicitors energetic pursuit of all the companies' assets, they assumed the former would be aware that they would promptly seek the payment-out of the monies in court. That does not seem to me to be particularly plausible.

Costs

16. Turning to the matter of costs, it seems to me that the parties should be afforded the benefit of an order nisi in case it proves acceptable and affords also some savings in costs, which must already be quite disproportionate to the sum at stake.

17. Having regard to all the circumstances, in particular the companies' solicitors' failure to inform the appellant's solicitors of the money having been paid out and thereby depriving them of an opportunity of possibly withdrawing the appeal and taking other steps, it seems to me that the just and appropriate order should be that there be no order as to the costs of this appeal.

Wong, J.:

18. I, too, would dismiss the appeal with no order as to costs for reasons given by the Vice President.

Keith, J.:

INTRODUCTION

19. The Judgment Creditor's primary case on this appeal is that the funds in court were not subject to a Quistclose trust in favour of the Intervenors. I agree entirely with Nazareth V.-P. that it has not been necessary to determine that question to dispose of this appeal. That is because, like Nazareth V.-P., I think that the appeal must be dismissed for two other reasons, one of which focuses on the events which have occurred since Sears J. discharged the charging order absolute. I also agree with the order nisi as to costs which Nazareth V.-P. proposes. However, I add a few words of my own because my analysis of the arguments is slightly different from that of Nazareth V.-P.

THE PRESENT WHEREABOUTS OF THE FUNDS

20. The funds are no longer in court. They were paid out to the Intervenors' solicitors a few weeks after Sears J. had allowed the Intervenors' appeal pursuant to leave given by Master O'Donnell. The application had been made by the Defendants' solicitors. That was only revealed to the Judgment Creditor on the day before the hearing of this appeal, and even then only as a result of it being referred to in the skeleton argument of counsel for the Intervenors.

21. For my part, I am not entirely happy about how the application for the payment out of the funds in court was made. The court was informed by the Defendants' solicitors that the payment out was being sought with the consent of the Intervenors. That may have left Master O'Donnell to think that it was only the Intervenors who might have objected to the payment out, when in reality it was the Judgment Creditor who was the only party likely to have objected to it. Although the application for the payment out was the obvious one for the Defendants to make, the fact that it was done without notice to the Judgment Creditor's solicitors suggests that the Defendants' solicitors wanted to avoid the possibility of there being a stay on the payment out pending any appeal from Sears J.'s order discharging the charging order. For these reasons, it may be that (but for the issue of discretion) the Judgment Creditor might have had some recourse against the Defendants' solicitors for the way in which they procured the payment out of the funds in court. But the fact is that the funds are no longer in court. That means that there are no funds to which the charging order can now attach.

22. That is not disputed by Mr. Robert Kotewall S.C. for the Judgment Creditor. He seeks to meet the problem by saying that Master O'Donnell had no jurisdiction to order the payment out of the funds in court. The payment out was therefore made under a mistake of law, and the Court of Appeal has an inherent jurisdiction to order the repayment into court of a sum which has been paid out under a mistake of law or fact: see Gainsborough Mixed Concrete Ltd. v. Duplex Petrol Installations Ltd. [1968] 1 WLR 1463. Accordingly, Mr. Kotewall applied for an order requiring the Intervenors to repay these funds into court. The application could not have been made earlier, of course, because the Judgment Creditor's solicitors had been kept in the dark about the removal of the funds in court until the day before the hearing of the appeal.

23. This argument raises three issues. First, were the funds in court originally paid into court pursuant to an order of the court? Secondly, if so, could they only be paid out of court pursuant to an order of the court? Thirdly, if so, did Master O'Donnell have jurisdiction to order their payment out of court?

24. On the first of these three issues, Mr. Raymond Faulkner S.C. for the Intervenors argued that no order had originally been made for the payment of the funds into court. The order which had originally been made by Godfrey J.A. was that the Defendants, by a specified time and date, "lodge in court security for [the Judgment Creditor's] ... costs of the Defendants' appeal". This was not, so it was said, an order for the payment into court of a sum of money. It was simply an order for the lodging in court of security for the Judgment Creditor's costs of the appeal. The distinction between (a) the payment into court of a sum of money pursuant to an order of the court and (b) the lodging of security for costs in court, is borne out by r. 3(4) of the Supreme Court Suitors' Funds Rules, which provide that a receipt for money paid into court

"shall contain a statement of such of the following circumstances as are applicable ...

(d) paid in under order dated the day of 19 ;

(e) paid in to security for costs account on behalf of (name of party) ..."

I reject this argument. It assumes that a payment into court cannot come within both categories at the same time. There is no basis for that assumption. In my view, the $1.1m. was paid into court (a) pursuant to Godfrey J.A.'s order, and (b) by way of security for the Judgment Creditor's costs of the appeal.

25. Since the payment was made into court pursuant to an order of the court, the next question is whether it could only be paid out pursuant to an order of the court. Mr. Faulkner argued that an order for payment out was not needed. That was because the funds were in court to provide security for the Judgment Creditor's costs. That security was no longer required when the Court of Appeal ordered that there be no order as to the costs of the appeal. The payment out of the funds to the Defendants' solicitors was therefore inevitable, and since it was no more than an administrative act, no order of the court was required to sanction the payment out. I reject this argument as well. It ignores Ord. 22 r. 8(2) of the Rules of the High Court, which provides:

"... money paid into court under an order of the Court ... shall not be paid out except in pursuance of an order of the Court."

Ord. 22 r. 8(2) does not distinguish between those cases in which the payment out of funds in court is inevitable and those when it is not, and I see no warrant for importing that distinction into Ord. 22 r. 8(2). It follows that the $1.1m. could not have been paid out to the Defendants' solicitors without an order of the court.

26. Of course, the Defendants' solicitors obtained an order from the court to that effect - the order of Master O'Donnell - and that raises the third question: did he have jurisdiction to order the payment out of court? Mr. Kotewall argued that he did not. The words "except in pursuance of an order of the Court" should be construed, he said, as referring to the court which made the original order for the payment of the money into court. Accordingly, the order which Master O'Donnell purported to make could only have been made by the Court of Appeal, albeit by a single Justice of Appeal pursuant to Ord. 59 r. 10(9).

27. I cannot go along with this argument. The words "the Court" are defined in Ord. 1 r. 4(2) in such a way as not to limit their meaning in the way Mr. Kotewall suggested. I do not overlook the words "unless the context otherwise requires" in Ord. 1 r. 4(2), but I do not see why the court which made the order for payment into court should be required to be the court which makes the order for payment out of court. I appreciate that the court which is asked to order the payment out should know why the order for payment in was made, but in the normal course of events, the court will be told that by the lawyers. Indeed, unless it is the very same judge who hears the application for payment out, the advantage of having the same court determining the issue will be lost. And yet Mr. Kotewall did not go so far as to argue that the reference to "the Court" in the latter part of Ord. 22 r. 8(2) applied, not merely to the same court which ordered the payment out, but also to the same judge.

28. It follows that Master O'Donnell had jurisdiction to order the payment out of the funds in court. For my part, therefore, the application for the repayment into court of those funds must be refused.

THE EXERCISE OF DISCRETION

29. The second reason why I have decided that the appeal should be dismissed relates to the fact that the making of a charging order is entirely discretionary (see section 20(1) of the Supreme Court Ordinance) - though section 20(3) requires the court to take particular facts into account. Sears J. concluded that even if a Quistclose trust had not been created in favour of the Intervenors, he would have exercised his discretion against the Judgment Creditor. He did not say why, but there are two reasons why I cannot say that his discretion should be interfered with.

30. First, the funds were in court as security for the Judgment Creditor's costs of the appeal. They were intended to protect the Judgment Creditor from being unable to enforce an order for the costs of the appeal in his favour because the Defendants had no assets. The rationale for the funds remaining in court therefore fell away when no order as to costs was made. It would have been open to Sears J. to take the view that it would not be right for the Judgment Creditor to be able to enforce his judgement against funds which had been earmarked only for his legal costs in resisting the appeal. Secondly, even if the circumstances giving rise to a Quistclose trust in favour of the Intervenors had not arisen, it was not disputed that the funds had, as a matter of fact, come from the Intervenors' personal resources. The view that it would not be right for the Judgment Creditor to enforce his judgment against funds which had come from the Intervenors' personal resources is again one which would have been open to Sears J. to take.

Nazareth, V.-P.:

31. The appeal is accordingly dismissed with an order nisi that there be no order as to costs.

Representation:

Mr Robert Kotewall SC and Miss Maria Yuen (M/s So, Keung, Yip & Sin) for the 3rd Appellant

Mr Christopher Smith (M/s Shaw, Ng & Ma) for the Respondents

Mr R.J. Faulkner SC and Mr Allen Yau (M/s Philip K.H. Wong, Kennedy Y.H. Wong & Co) for the Respondents (Intervenors)