B.I.S. Consultants Ltd v. Dao Heng Bank Ltd

CACV000153/1988

BETWEEN

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Coram: Hon. Yang, C. J., Hunter & Macdougall. JJ. A.

Date of hearing: 6 January 1989

Date of delivery: 6 January 1989

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J U D G M E N T

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Hunter, J. A. :

1. On 24th October 1988, Master Jennings made an order for the interim payment by the defendant to the plaintiff in this action of a sum of just over HK$212,000 and refused a stay of execution. On 27th October H. H. Deputy Judge Cruden dismissed the defendant's appeal against the Master's order. From that dismissal the defendants now appeal to this Court.

2. This is yet another stage in long standing litigation involving four parties. On one side there is a company called Hong Leong Securities Limited which carry on the business of stock brokers in Hong Kong. They are associated with the present defendant, the Dao Heng Bank Limited. On the other side, there is a Mr. Margot and the present plaintiffs B. I. S. Consultants Limited. Mr. Margot was formally employed by Hong Leong as an Executive Director. B. I. S. has been described as his service company, and is not in dispute than it is beneficially owned and controlled by him.

3. The trouble started in September 1986 when, apparently suddenly, Mr. Margot left Hong Leong's employment taking 16 other employees with him. Two pieces of litigation then followed, both of which ended in judgments given by Godfrey J in April 1987. In the first action, 5579 of 1986, judgment was entered for Hong Leong against Mr. Margot personally in the sum of HK$135,000 and against B. I. S. in the sum of just over HK$254,000. Early in that action an injunction had been granted to the plaintiff Hong Leong against Mr. Margot personally, restraining him from attempting to practise as a stockbroker in Hong Kong. That injunction was discharged at the trial, about 6 months after it was first granted. An order was made by Godfrey J for an inquiry as to the damage occasioned to Mr. Margot by this injunction. The necessary steps were taken in June of that year for the assessment to take place. But since then nothing effective has happened. The reason may well be that there is a stay of execution on the second judgment I am about to describe pending such assessment.

4. In the second case Hong Leong recovered against Mr. Margot a judgment for a sum of HK$2.587m and over 8,000 sterling, in respect of damages for breach of duty whilst he was in their service. It is the execution on that judgment which has been stayed pending the assessment of the damages occasioned by the injunction. The fact that that assessment has not been pursued almost invites a court to conclude that Mr. Margo is not very confident that those damages will reach, let alone exceed, the sums of the judgments given against him. So long as the assessment is outstanding, it may be convenient to him to paralyse any attempt by Hong Leong Securities to enforce these substantial judgements.

5. There are in fact two steps which Hong Leong say are open to them to take but for the existing stay. The first relates to Mr. Margot's shares in B. I. S. As I have said he is apparently the controlling if not the sole shareholder in that company. Upon an inquiry as to his means it emerged that these shares were virtually his only asset. Those shares enable him to control B. I. S., and to control the steps which B. I. S. has been taking in the present litigation. One of the things which the judgment creditors wish to pursue is an application for a receiver by way of equitable execution over those shares to displace Mr. Margot's control over the company, and to insure, insofar as it is within the capacity of shareholders to do, that the company's assets are not dissipated.

6. The second step is one which is in dispute on the evidence. It is that Hong Leong wish to the free to take garnishee proceedings in respect of a debt it is alleged is owed by B. I. S. to Mr. Margot personally. The circumstances in which that arose were these. As I have already said, in the first action Hong Leong obtained judgment against B. I. S. for over HK$254,000. They then sought to wind up the company. At the last minute, on 2nd June 1987, the judgment debt was paid and the petition withdrawn. In the course of the examination of Mr. Margot as to his means he produced a very short affidavit from his mother, who lives in the Isle of Man, to the effect that she in 1987 advanced a "sum of money by loan with interest to my son Graham James Margot to enable him to settle an outstanding judgment debt in the Hong Kong Higt Court in respect to the Company B. I. S. Consultants".  The Court has been invited from this to infer, that although the lady does not specify the sum, this was in fact the HK$254,000 which she paid by way of loan to Margot, and which thereupon Margot paid by way of loan to B. I. S. to enable it to satisfy the judgment debt and to secure the dismissal of the winding up petition. It seems to us that that inference is a powerful one upon the evidence before us. Perhaps inadvertently, at one time in the course of his argument Mr. Pirie suggested that this was in fact plain, but he sought to suggest that it was plain that the debtor of the company was the mother and not the son. I would he minded to conclude that there is clear evidence of debt, and equally clear evidence, that the debtor is Margot and not his mother. So those are the two of the possible lines of execution which are presently stayed as far as Hong Leong Securities are concerned. I add that neither involves any lifting of any corporate veil.

7. I now turn to the present action. This has created the sum of money of HK$212,000 which is the subject of the interim payment order. Briefly what has happened is this. After Mr. Margot took up employment with Hong Leong, he purchased a flat in Repulse Bay in the name of B. I. S. Consultants, with the assistance of a mortgage from the Dao Heng Bank Limited. The mortgage was made available to him by reason of the association between Hong Leong and the Bank. Once he left the employment no further mortgage repayments were made, with the result that proceeding were instituted against B. I. S. by the Bank as mortgagee. Now in the course of those proceedings Mr. Margot produced a copy of a sale and purchase agreement which purported to show that B. I. S. Consultants Limited had sold the property to a company named Snaefell Enterprises Limited for a consideration of HK$1.8m. That figure was plainly arrived at, not by reference to the value of the property, but to produce a sum which was sufficient to discharge the mortgage debt and no more.

8. In those circumstances, Hong Leong intervened and obtained an order restaining Margot and B. I. S. from selling at that figure or indeed at an under-value. Mr. Margot was so put out by that injunction that he appealed to this Court, unsuccessfully. That piece of history shows the apparent extent to which he is prepared to go, it might he said, to cut off his nose to spite his face, to make sure that the minimum possible sums are recovered by either Hong Leong or the Bank. The upshot was that thanks to the efforts of Hong Leong and the Bank, the property was sold for HK$2.1m and deducting the expenses of the sale the ultimate balance has been tentatively assessed at a figure of HK$212,000 which is the subject of the interim payment. In respect of that figure the Bank and Hong Leong can with some justification assert that it is only thanks to their efforts that this fund exists at all.

9. In those circumstances what the Bank is seeking to say is this. Look at this matter in the round. Here is a case where as a result of the activities of the Bank and its associate Hong Leong, this fund has been created. This fund is liable to be taken by way of execution by Hong Leong either by garnishee proceedings or via the shares. It is quite unfair to order the Bank now to release this sum to B. I. S., to be used by B. I. S. For its own purposes, whilst the efforts of the judgment creditor to levy execution upon it are frustrated. In those circumstances the Bank seek a stay of execution.

10. The judge rejected this proposition. In so doing he first, I think, overlooked one matter of fact. Last October there was a bit of coxing and boxing before Godfrey J. In the early stages of October the learned judge lifted the stay of execution on the principal judgment debt, at the same time as he granted an injunction against B. I. S. Restraining an attempt to wind up the Bank (such is the enmity between these parties). That fact in recordend by the Deputy Judge in his judgment.  But only about a week later the stay was reimposed. This fact is not recorded in his judgment, and it does seem very likely that he overlooked it when coming to his conclusion.

11. Secondly the judge rejected the application upon the basis that he was not satisfied that there was sufficient evidence of indebtedness of B. I. S. to Mr. Margot. For the reasons I have already given, I cannot share that view. It seems tome that the evidence of indebtedness is much clearer than it seemed to the judge.

12. The third reason he gave for declining a stay of execution, was that he said that he was not satisfied that this was a case where he could lift the corporate veil. With respect to him, I do not think that he was asking himself the right question. The right question in my judgment is that raised by Order 47 r 1 :-

"(1)    where a judgment is given or order made for the payment by any person of money and the court is satisfied on an application made at the time of the judgment or order or at any time thereafter, by the judgment debtor or any other party liable to execution.

the court may order a stay.

13. The question here was "are there special circumstances which render it inexpedient to enforce the judgment or order"? That is not necessarily the same question as whether the corporate veil can be lifted.

14. This expression was used by the judge having been referred to two decisions in the Commercial Law Reports for 1981 : the first, which is reported in that series at p 167, is Canada Enterprises Corporation Ltd v MacNab Distilleries Ltd: the second, which is reported on p 168, is Orri v Moundreas a decision of Mustill J, as he then was. In both those cases, the first the Court of Appeal and second Mustill J held that it was appropriate in the circumstances to grant a stay of execution. At the end of the judgment of Cairns LJ in the Canada case this appears :

"In view of the very wide discretion given to the court by Order 47 Rule 1(1) (a) (which J have just read) the judge (I think that must mean Cairns LJ) felt that it was right to look behind the fact that there were companies involved and to consider the parties who controlled those companies and, 'having done so, in my view, this is a case where there are very special circumstances, and where it is expedient that this stay should be granted.'

In the course of giving a concurring judgment Browne LJ pointed out that :

"Although, in certain contexts, expediency' can be contrasted with justice', in Order 47 Rule 1, they ought to be taken as having one and the same meaning."

15. That approach was summarised by Mustill J (as he then was) in the following case where he treats that decision as demonstrating "that the court would look behind the corporate structure to find the persons truly at interest and then to exercise its power to grant a stay, as the justice of their mutual relations might demand".

16. It seems to me that there is a material distinction between lifting the corporate veil, in perhaps the strict sense of that phrase, in order to impose liability upon any person who has been conducting himself behind the protection of a corporate umbrella; and looking through the corporate structure as an interim measure to see if it is right to take interim steps to preserve and protect the situation until it is ultimately resolved. When the court is granting relief like mareva injunctions or stays of execution in a case like this, it is pursuing the latter not the former course.

17. It seems to me that the question which this Court ought to be asking itself, and which with respect the trial judge ought to have asked, is whether the justice of the parties mutual relations might demand a stay of execution in this case. In my judgment for the reasons and the background that I have given, to my mind there is only one answer to that.  In the same way as the execution against Mr. Margot is stayed pending the assessment of damages in his favour, equally the execution of B. I. S. against the Bank should be stayed on the same basis and for precisely the same period. So for my part I would allow this appeal.

Yang, C.J. :

18. I too would allow the appeal for the reasons already given.

Macdougall, J. A. :

19. For the reasons given by my Lord Hunter, I too would allow this appeal.

Representation:

R Faulkner (M/s Slaughter & May) for Appellant/Defendant

N Pirie (M/s Robin Bridge & John Liu) for Respondent/Plaintiff