Tyrrell Benjamin John v. Writer Relocasia Ltd

DCMP 2366/2013 & DCMP 2367/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NOS

2366 OF 2013 AND 2367 OF 2013

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BETWEEN

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Before:  Deputy District Judge Timon Shum in Chambers (Open to Public)

Date of Hearing:  27 March 2014

Date of Decision:  29 May 2014

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DECISION

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1.On 13 September 2013, the judgment creditor, who is the plaintiff in these proceedings, obtained a garnishee order to show cause for a Labour Tribunal award dated 18 July 2013 for (a) the sum of HK$390,220.11; (b) interest in the sum of HK$6,502.81 being interest on arrears of wages at the rate of 8% per annum; and (c) interest on the sum of HK$390,220.11 at judgment rate from 19 July 2013 until full payment in DCMP 2366 of 2013 (“the 1^st Garnishee Order”).  On the same date, the judgment creditor obtained another garnishee order to show cause for another Labour Tribunal award dated 18 July 2013 for (a) the sum of HK$110,460.30; (b) interest in the sum of HK$4,808.71 being interest on arrears of wages for December 2012 at the rate of 8% per annum; and (c) interest on the sum of HK$110,460.30 at judgment rate from 19 July 2013 until full payment in DCMP 2367 of 2013 (“the 2^nd Garnishee Order”).

2.By a summons filed on 24 January 2014, the judgment debtor, which is the defendant in these proceedings, applied for an order that the execution of the Labour Tribunal Awards/Orders dated 18 July 2013 and 12 August 2013 in LBTC Nos 215 of 2013 and 579 of 2013 (including by way of Garnishee Orders to Show Cause issued in these proceedings) be stayed (“the judgment debtor’s summons”).

3.On 29 January 2014, Master Michelle Lam ordered that:-

(a) the hearing of the 1^st Garnishee Order and the 2^nd Garnishee Order to be made absolute and the judgment debtor’s summons be adjourned for argument to 27 March 2014 before a District Judge with 3 hours reserved.

(b) the validity of the 1^st Garnishee Order and the 2^nd Garnishee Order be extended to 27 March 2014.

(c) the judgment creditor do have 21 days to file and serve an affirmation in reply to the 4^th Affirmation of Chan Bronson Yik Him filed on 28 January 2014.

(d) No further affirmation be filed without leave of the court.

(e) Costs be served.

4.The hearing now before me is pursuant to the order of Master Michelle Lam.

5.The garnishee DBS Bank (Hong Kong) Limited is absent.  Mr Hudson, solicitor for the judgment creditor, informs me that all the documents have been served on the garnishee but all along the garnishee has never appeared.

Issues that need to be determined

6.The issues that I need to determine at this hearing are:-

(a) Whether the 1^st Garnishee Order and the 2^nd Garnishee Order should be made absolute.  The judgment creditor says they should be while the judgment debtor says they should be discharged or set aside.

(b)     If the court decides that the 1^st Garnishee Order and the 2^nd Garnishee Order should not be discharged or set aside, whether the execution of the same should be stayed.

Background 

7.The judgment creditor was formerly an employee and a current shareholder of the judgment debtor.  On 18 July 2013, the judgment creditor obtained an award from the Labour Tribunal against the judgment debtor in LBTC 579/2013 for HK$390,220.11, which consists of wages in lieu of notice, arrears of wages, annual leave pay, expenses and costs, together with interest (“the 1^st Award”).  On the same date, the judgment creditor obtained another award from the Labour Tribunal against the judgment debtor in LBTC 215/2013 for HK$110,460.30, which consists of arrears of wages and costs, together with interest (“the 2^nd Award”).  The judgment debtor’s applications to set aside and review the 1^st Award and the 2^nd Award were refused by the Labour Tribunal on 12 August 2013 (“the Review Orders”).

8.In order to enforce the 1^st Award and the 2^nd Award, the judgment creditor on 12 September 2013 applied to the District Court for garnishee orders in DCMP 2366/2013 and DCMP 2367/2013 that all debts due or accruing due from the garnishee DBS Bank (Hong Kong) Limited to the judgment debtor be attached to answer the 1^st Award and the 2^nd Award.  The 1^st Garnishee Order and the 2^nd Garnishee Order were granted by Master Dick Ho on 13 September 2013.

Preliminary issue

9.Before I deal with the central issues in front of me, I will address a preliminary issue which is in relation to the judgment debtor’s request to file further evidence for this hearing.  On 13 March 2014, the judgment debtor took out 2 summonses in DCMP 2366/2013 and DCMP 2367/2013 asking for leave to file the 2^nd Affidavit of Yazdi Desai in reply to the 2 affidavits filed by the judgment creditor on 18 February 2014 in opposition to the judgment debtor’s summons dated 24 January 2014.  The judgment creditor opposes these applications.

10.In order to determine whether the judgment debtor’s request to file further evidence should be allowed, I need to consider the history of filing of evidence by the parties.

11.On 12 September 2013, the judgment creditor filed 2 affirmations of Cathy Tsz Yan Wu in support of his applications for the 1^st Garnishee Order and the 2^nd Garnishee Order in DCMP 2366/2013 and DCMP 2367/2013.

12.On 15 October 2013, the judgment debtor filed the affirmation of Chan Bronson Yik Him in support of its summons dated 15 October 2013 for execution of the Labour Tribunal Awards/Orders dated 18 July 2013 and 12 August 2013 in LBTC Nos 215 of 2013 and 579 of 2013 (including by way of Garnishee Orders to Show Cause issued in these proceedings) be stayed until the final determination of the judgment debtor’s applications for leave to appeal under HCLA No 14 of 2013 (and thereafter, if leave is granted, up to the final determination of the proposed appeal to the High Court) or further order.  On 23 October 2013, the judgment debtor filed the affidavit of Deepak Kumar Chotwani in support of this summons.

13.On 14 January 2014, the judgment debtor filed the 2^nd affirmation of Chan Bronson Yik Him to oppose the making of the 1^st Garnishee Order and the 2^nd Garnishee Order absolute.

14.On 14 January 2014, the judgment debtor filed the affidavit of Yazdi Desai to explain the recent developments surrounding the investigations by the Inland Revenue Department (“IRD”) of the tax affairs of the judgment creditor.

15.On 28 January 2014, the judgment debtor filed the 4^th affirmation of Chan Bronson Yik Him in support of its summons for stay of execution dated 24 January 2014.

16.It was against this background that Master Michelle Lam on 29 January 2014 ordered that the judgment creditor do have 21 days to file and serve an affirmation in reply to the 4^th affirmation of Chan Bronson Yik Him filed on 28 January 2014.

17.On 18 February 2014, the judgment creditor filed 2 affidavits of Benjamin John Tyrrell pursuant to the order of Master Michelle Lam on 29 January 2014.

18.The learned master made it clear on 29 January 2014 that no further affirmation be filed without leave of the court.  Needless to say, an attempt by a party to file further evidence on the day of the hearing would normally cause the court to raise its eyebrows.  I must say that originally I was reluctant to allow further evidence in light of the learned master’s direction on 29 January 2014.  But having heard submissions from both sides and having considered all the circumstances, I have decided to allow the judgment debtor to file the 2^nd Affidavit of Yazdi Desai in reply to the 2 affidavits of Benjamin John Tyrrell filed by the judgment creditor on 18 February 2014.  My reasons are as follows:-

(a) Both the judgment creditor and the judgment debtor raised the issue as to whether the judgment creditor had failed to pay security for costs in another case in the Court of First Instance HCA 2366/2012.  In that case, the judgment creditor and one Matthew Burden (“MB”) were suing PN Writer and Company Limited (“PN Writer”) for the consideration of the 75% shareholding in the judgment debtor sold to it.  The judgment debtor says that the judgment creditor has failed to pay the security for costs because the judgment creditor has been residing in the United Kingdom since 5 August 2013.  If sums are ordered to be paid pursuant to the 1^st Garnishee Order and the 2^nd Garnishee Order, there is a high risk that the same will not be recovered from the judgment creditor when they are later found to be wrongly paid.  In the affidavit of Benjamin John Tyrrell filed by the judgment creditor in DCMP 2366/2013 on 18 February 2014, reference was made to exhibit “BJT-4” which is a bundle of correspondence between the solicitors’ firm for WN Writer, Hart Giles, and the solicitors’ firm for the judgment creditor, Deacons, on the issue of payment for security for costs.  Such correspondence consists of some without prejudice letters.  Under normal circumstances, such without prejudice communications should not be shown to the court until the issue of costs needs to be determined.  While the judgment debtor says it is inappropriate for the judgment creditor to show the same to the court, the judgment debtor does not seem to be objecting this court to look at such without prejudice communications at this hearing.  I believe it is only fair that the judgment debtor should be given a chance to explain its interpretation of the same in the context.  The judgment debtor is trying to do this in the 2^nd affidavit of Yazdi Desai.

(b) Mr Hudson, for the judgment creditor, in his written submissions for today’s substantive hearing puts forward a point that the judgment debtor has already paid into court a sum of HK$350,000 as security for costs in HCA 2366/2012.  This gives me the impression that Mr Hudson is quite prepared to deal with the matters raised in the 2^nd affidavit of Yazdi Desai which he is objecting.

(c) Another issue that the parties are in dispute is whether the IRD is conducting investigations as to the possible tax evasion by the judgment creditor and whether Mr Ismail of the IRD had orally instructed the judgment debtor to withhold payment of any salaries to the judgment creditor pending the completion of the investigations.  On this issue, the judgment debtor and the judgment creditor have very different versions as to what had been said by Mr Ismail.  It is much better if the 2 sides spell out fully what they had heard from Mr Ismail and their understanding of the same.  The 2^nd affidavit of Yazdi Desai, which the judgment debtor seeks to introduce, fulfills this purpose.

(d) Mr Hudson, solicitor for the judgment creditor, informs me that even if the court allows the judgment debtor to file 2^nd affidavit of Yazdi Desai, the judgment creditor will not seek to reply by filing further affidavit evidence.  As such, I take this to mean that the introduction of the 2^nd affidavit of Yazdi Desai will not prevent the judgment creditor from effectively presenting his case before me.  But of course, I will not regard the judgment creditor as accepting the contents of the said affidavit.

19.I note that the judgment debtor already filed the 2^nd affidavit of Yazdi Desai on 17 March 2014 without leave of the court.  For the reasons I have outlined above, in respect of the 2 summonses taken out by the judgment debtor on 13 March 2014 in DCMP 2366/2013 and DCMP 2367/2013, I order that retrospective leave be granted to the judgment debtor to file the 2^nd affidavit of Yazdi Desai in reply to the 2affidavits filed by Benjamin John Tyrrell both dated 18 February 2014 in opposition to the judgment debtor’s summons dated 24 January 2014.

20.As to costs of these 2 summonses, I order that there be no order as to costs.  The 2 affidavits of Benjamin John Tyrrell were filed on 11 March 2014. On 13 March 2014, the judgment debtor took out the 2 summonses applying for leave to file the 2^nd affidavit of Yazdi Desai.  The 2 summonses are returnable today which is the date of substantive hearing.  I agree to solicitor for judgment creditor Mr Hudson’s observation that there is no reason why the 2 summonses should not be fixed before today so that the evidence of the 2 sides would be in order before the substantive hearing.  The judgment debtor’s approach has the effect of causing delay to the substantive hearing as part of today’s hearing time has been spent on determining the 2 summonses for filing of further evidence.  This should not be encouraged.  Therefore, even though I have granted retrospective leave to the judgment debtor to file the 2^nd affidavit of Yazdi Desai, I make no order as to costs in relation to the 2 summonses.

Judgment debtor’s arguments

21.Now I turn to the central issues of today’s substantive hearing.

22.Mr Sakhrani, counsel for the judgment debtor, puts forward the following reasons to convince the court that the 1^st Garnishee Order and the 2^nd Garnishee Order should be discharged or set aside, or alternatively, if the same are not discharged or set aside, the execution of the 1^st Award, the 2^nd Award and the Review Orders should be stayed:-

(a) On 3 December 2013, the judgment debtor obtained final judgment against the judgment creditor and MB for the sums of HK$1,800,000 and US$1,637,101 with interest in another case in the Court of First Instance HCA 1372/2013.  The aforesaid judgment sums are larger than the amounts under the 1^st Garnishee Order and the 2^nd Garnishee Order.  If sums are paid out to the judgment creditor pursuant to the 1^st Garnishee Order and the 2^nd Garnishee, there is a risk that these will not be recovered from the judgment creditor later.  The judgment debtor relies on Vallat Maurice Henri Roland v Phoenix Telecommunication Ltd & Ors, DCMP 3402/2003, 19 May 2004, to argue that the 1^st Garnishee Order and the 2^nd Garnishee Order should be discharged.

(b) On 2 September 2013, the judgment debtor received a letter from the IRD making enquiries about a discrepancy in the Directors’ Remuneration for the financial years 2006/2007 to 2011/2012.  The Employer’s Return (IR56B/IR56G) shows a figure of HK$9,960,392 but the audited accounts show a figure of HK$10,677,913.  Deepak Kumar Chotwani, the judgment debtor’s South East Asia Region Finance Controller, in his affirmation filed on 23 October 2013 deposed that the judgment creditor and MB were the only shareholders and directors of the judgment debtor prior to the sale of their shares to PN Writer in July 2011.  On 17 October 2013, 3 officers from the IRD visited the judgment debtor to conduct interviews with Mr Chotwani and obtain further information on this matter.  Mr Chotwani stated that after the enquiry, he was informed by Mr Ismail of the IRD that (i) the IRD will continue to investigate this matter; (ii) the IRD will consider issuing a notice or order for re-assessment of the remuneration of the judgment creditor and MB for the aforesaid financial years; and (iii) the judgment debtor should withhold payment of salaries to the judgment creditor and MB until the IRD’s investigations and enquiries have been concluded.  He was told by Mr Ismail that if the judgment debtor did not withhold payment of salaries to the judgment creditor and MB before the conclusion of the investigations and enquiries, the judgment debtor would be liable to the IRD for any outstanding taxes payable, together with any penalties for inaccurate declarations of remuneration.

23.The judgment debtor also raised the point of the judgment creditor’s failure to pay security for costs in HCA 2366/2012 in the 2^nd affirmation of Chan Bronson Yik Him filed on 14 January 2014, the 4^th affirmation of Chan Bronson Yik Him filed on 28 January 2014 and the 2^nd affidavit of Yazdi Desai filed on 17 March 2014.  The judgment debtor’s argument was that the judgment creditor’s failure to pay security of costs indicated he was residing outside Hong Kong and there was a risk that any sums paid to the judgment creditor pursuant to the 1^st Garnishee Order and the 2^nd Garnishee Order would not be recovered by the judgment debtor later.  However, the judgment creditor paid into court a sum of HK$350,000 as security for costs in HCA 2366/2012 on 13 March 2014.  Counsel for the judgment debtor, Mr Sakhrani, is not pursuing this point at this hearing.

The judgment creditor’s arguments

24.Mr Hudson, solicitor for the judgment creditor, puts forward the following points to convince the court that the 1^st Garnishee Order and the 2^nd Garnishee Order should be made absolute and that the judgment debtor’s summons for stay of execution should be dismissed:-

(a) The judgment debtor’s application for leave to appeal against the 1^st Award, the 2^nd Award and the Review Orders was dismissed by Mr Justice L Chan of the Court of First Instance in HCLA 14/2013.  The 1^st Award and the 2^nd Award are final and should be paid within 14 days after the date of the awards pursuant to section 43P of the Employment Ordinance.

(b) The 1^st Award and the 2^nd Award both relate to wages and other sums due to an employee and no deductions should be allowed in respect of the final judgment in HCA 1372/2013 or the alleged IRD investigation.  The judgment creditor relies on section 32 of the Employment Ordinance.

(c) The final judgment in HCA 1372/2013 is an illegitimate default judgment and the judgment creditor is applying to set aside the same.

(d) Contrary to what the judgment debtor has alleged, during the telephone conversations between the judgment creditor and Mr Ismail of the IRD on 10 and 13 February 2014, Mr Ismail confirmed that (i) the IRD had never issued any oral instructions to the judgment debtor to withhold payment of his wages; (ii) he was not aware of the existence of the 1^st Award and the 2^nd Award; and (iii) the IRD had no issue with the judgment debtor releasing the sums under the 1^st Award and the 2^nd Award to the judgment creditor.

Discussions

25.The points raised by the judgment creditor touch upon those raised by the judgment debtor.  So I will deal with the same one by one.

Section 43P of the Employment Ordinance (Cap 57)

26.What is not disputed is that the judgment debtor’s application for leave to appeal against the 1^st Award, the 2^nd Award and the Review Orders was dismissed by Mr Justice L Chan in HCLA 14/2013.  A refusal by the Court of First Instance to grant leave to appeal shall be final under section 32(3) of the Labour Tribunal Ordinance.

27.The judgment creditor relies on section 43P of the Employment Ordinance with reads as follows:-

“(1) If –

(a) an award of a tribunal provides, in whole or in part, for the payment by an employer of any specified entitlement; and

(b) the employer wilfully and without reasonable excuse fails to pay:–

(i) any sum payable under the award (other than a sum to which subparagraph (ii) applies) within 14 days after the date of the award; or

(ii) any sum payable under the award that is, by the terms of the award, payable otherwise than on the date of the award, within 14 days after the date on which the sum is, by those terms, payable,

the employer commits an offence and is liable on conviction to a fine of $350000 and to imprisonment for 3 years.

(2) A reference in subsection (1)(b)(i) or (ii) to any sum payable under an award includes:–

(a) any part of a sum payable under the award; and

(b) in the case of a sum payable by instalments, any instalment or part of any instalment.

(3) For the purposes of subsection (1), if –

(a) an award of a tribunal provides for the payment of a sum but does not indicate whether or not that sum includes any specified entitlement; and

(b) the claim to which the award relates consists, in whole or in part, of any specified entitlement,

then, unless there is evidence to the contrary, the award is to be treated as providing for the payment of a specified entitlement.”

28.There is no need for me to determine whether the judgment debtor has committed any offence under section 43P.  This is not the issue before me.  It is sufficient for me to state my observation that the employer’s obligation to pay a sum under a labour tribunal award is not absolute.  An employer commits an offence if he “wilfully and without reasonable excuse fails to pay.”  This section relied on by the judgment creditor does not shed any light on the issues as to whether the 1^st Garnishee Order and the 2^nd Garnishee Order should be made absolute or should be discharged or set aside and whether there should be a stay of execution.

Sections 23, 25, 32 and 63C of the Employment Ordinance (Cap 57) 

29.Mr Hudson refers me to sections 23, 25, 63C of the Employment Ordinance and the case of Secretary For Justice v Li Chi Leung [1998] 1 HKC 612. Section 23 states that wages shall become due on the expiry of the last day of the wage period and shall be paid as soon as is practicable but in any case not later than 7 days thereafter.  Section 25(1) states that subject to section 31O, where a contract of employment is terminated any sum due to the employee shall be paid to him as soon as is practicable and in any case not later than 7 days after the date of termination.  Section 63C provides that any employer who wilfully and without reasonable excuse contravenes section 23, 24 or 25 commits an offence and is liable to a fine of $350,000 and to imprisonment for 3 years.

30.With respect to Mr Hudson, I am not determining whether the judgment debtor has committed any offence under those sections of the Employment Ordinance.  This is not the issue before me.  The case of Secretary For Justice v Li Chi Leung [1998] 1 HKC 112 is on the issues of whether the offences under sections 23 and 25 of the Employment Ordinance are continuing offences and whether a magistrate has the power to hear the summonses laid outside the 6-month period under section 26 of the Magistrates Ordinance.  This case authority has no direct relevance to the issues in front of me. 

31.As to section 32 of the Employment Ordinance relied on by Mr Hudson, this is about the restriction on deductions from wages.  The allowed categories of deductions include deductions for absence from work, deductions for damage to or loss of goods, equipment or property, deductions in respect of meals supplied by the employer, deductions for accommodation provided by the employer, deductions for the recovery of any advance or over-payment of wages made by the employer, deductions for the recovery of any loan made by the employer, deductions for the purpose of any medical benefit scheme, superannuation scheme, retirement scheme or thrift scheme, deductions authorized under any enactment and deductions made with the approval of the Commissioner for Labour.

32.Mr Hudson argues that as the sum due to the judgment debtor under the final judgment in HCA 1372/2013 and any sum due to the IRD under the alleged IRD investigations do not fall into the aforesaid categories, the same cannot be deducted from the 1^st Award and the 2^nd Award.

33.In relation to this point on section 32 of the Employment Ordinance, I accept the arguments of Mr Sakhrani for the judgment debtor.  While it is true that deductions from wages are not allowed except for those categories spelt out in section 32, one should note that we are not talking about wages at this stage.  We are dealing with 2 awards by the Labour Tribunal, namely the 1^st Award and the 2^nd Award, and the enforcement of the same by way of the 1^st Garnishee Order and the 2^nd Garnishee Order.  Section 32 has nothing to do with the issues before the court, namely (a) whether the 1^st Garnishee Order and the 2^nd Garnishee Order should be made absolute or discharged or set aside; and (b) whether there should be a stay of execution.

Final judgment in HCA 1373/2013

34.HCA 1373/2013 is a High Court action where the judgment debtor is suing the judgment creditor and MB.  According to the Writ of Summons filed on 26 July 2013, the judgment debtor is claiming for tortious breaches of 2 employment agreements both dated 19 July 2011, breaches of the shareholders agreement dated 19 July 2011, breaches of common law, fiduciary and statutory duties, negligence and fraudulent trading. 

35.The judgment creditor and MB did not file any notice of intention to defend and final judgment was entered against them for HK$1,800,000 and US$1,637,101 with interest on 3 December 2013.

36.On 29 January 2014, the judgment creditor and MB took out a summons to apply to set aside the final judgment in HCA 1372/2013 on the grounds that the judgment was irregular by virtue of bad or ineffective service of the Writ of Summons filed on 26 July 2013 and/or the judgment creditor and MB have a meritorious defence.  The substantive hearing of the setting aside application will take place on 23 May 2014. 

37.It is unnecessary and inappropriate for me to consider the merits of the judgment creditor’s and MB’s setting aside application which is entirely within the jurisdiction of the High Court.  It is sufficient for me to say that if the judgment creditor and MB fail in their application, the final judgment against the judgment creditor will remain.  This final judgment in favour of the judgment debtor is for an amount much greater than the 1^st Award and the 2^nd Award.  But if the judgment creditor and MB succeed in their application to set aside the final judgment, the judgment debtor’s claim against them in HCA 1372/2013 will have to proceed in the normal course of litigation and the matter needs to be adjudicated by the court.  There is still a possibility that at the end of the day the judgment debtor might obtain a judgment against the judgment creditor and MB which exceeds the 1^st Award and the 2^nd Award.  I accept Mr Sakhrani’s submission that if sums are now ordered to be paid to the judgment creditor pursuant to the 1^st Garnishee Order and the 2^nd Garnishee Order, there is a risk that the same might not be recovered from the judgment creditor.  The risk is now greater because the judgment creditor resides in the United Kingdom and his 3 accounts with the Hong Kong and Shanghai Banking Corporation Limited have a debit net balance.

Alleged IRD investigations of judgment creditor

38.The judgment debtor’s evidence is that the judgment creditor is being investigated by the IRD for possible tax evasion and Mr Ismail of the IRD had told the judgment debtor’s Deepak Kumar Chotwani to withhold payment of any salaries to the judgment creditor.

39.The judgment creditor’s own evidence is that he is not being investigated by the IRD for tax evasion.  The IRD is simply reviewing the housing allowances paid to him during the period of employment with the judgment debtor.  Mr Ismail of the IRD confirmed with the judgment creditor that the IRD had never instructed the judgment debtor to withhold payment of salaries to the judgment creditor.

40.Obviously, the judgment debtor and the judgment creditor have given different versions as to what had been said by Mr Ismail of the IRD.  This conflict of versions cannot be resolved unless Mr Ismail gives direct evidence but there is none.

41.Section 76 of the Inland Revenue Ordinance (Cap 112) provides this:-

“(1) Where tax payable by a person is in default, or a person charged to tax has quitted Hong Kong or in the opinion of the Commissioner is likely to quit Hong Kong without paying all the tax charged to him, and it appears to the Commissioner to be probable that any other person (hereinafter in this subsection referred to as the third party):–

(a) owes or is about to pay money to such person (hereinafter in this subsection referred to as the taxpayer): or

(b) holds money for or on account of the taxpayer; or

(c) holds money on account of some other person for payment to the taxpayer; or

(d) has authority from some other person to pay money to the taxpayer,

the Commissioner may give the third party notice in writing (a copy of which shall be sent by post to the taxpayer) requiring him to pay such moneys not exceeding the amount of tax in default or charged, as the case may be, to the officer named in the notice. The notice shall apply to all such moneys which are in the third party’s hands or due from him or about to be paid by him at the date of receipt of such notice or which come into his hands or become due from him or about to be paid by him at any time within a period of 30 days thereafter.

(4) Any person to whom a notice has been given under subsection (1) who could have complied therewith but failed to do so within 14 days after the expiration of the period referred to in subsection (1), shall be personally liable for the whole of the tax which he was required to pay, and such tax may be recovered from him by all means provided in this Ordinance for the recovery of tax from a person who has made default in payment.”

42.In the present case, there is not any notice in writing to the judgment debtor from the IRD requesting it to pay moneys owed to the judgment creditor directly to the IRD pursuant to section 76(1) of the Inland Revenue Ordinance. In the absence of such a written notice and in the absence of direct evidence from Mr Ismail, I do not regard the alleged investigations by the IRD on the tax affairs of the judgment creditor as a valid reason for not making the 1^st Garnishee Order and the 2^nd Garnishee Order absolute or for staying the execution of the same. 

43.The judgment creditor also raised the point as to whether the judgment debtor had failed to inform the IRD of his termination of employment with the judgment debtor pursuant to section 52 of the Inland Revenue Ordinance.  I am of the view that this has no relevance to the issues before me. 

Consideration of relevant legal principles

44.Of the various arguments raised by the judgment debtor and the judgment creditor, I am of the view that the only relevant consideration is the final judgment against the judgment creditor and MB in favour of the judgment debtor in HCA 1372/2013.  As said earlier, when sums are paid to the judgment creditor pursuant to the 1^st Garnishee Order and the 2^nd Garnishee Order, there is a risk that the same cannot be recovered if the judgment creditor and MB fail in their setting aside application, or if they succeed in their setting aside application but still lose their case to the judgment debtor after trial.

45.Mr Sakhrani, for the judgment debtor, refers me to the case of Vallat Maurice Henri Roland v Phoenix Telecommunication Limited & Others, DCMP 3402/2003.  In that case, the judgment creditor Mr Vallat obtained a Labour Tribunal judgment against the judgment debtor Phoenix Telecommunication Limited for arrears of salary in the sum of $592,131.65 with interest and costs on 17 August 2003.  The judgment creditor applied for a garnishee order nisi and obtained this on 11 October 2003.  The garnishee Dragon Investment Company II LLC owed a sum of $646,243.67 to the judgment debtor. The judgment creditor sought to make the garnishee order nisi absolute.  But the garnishee sought to have the garnishee order discharged on the grounds that it had substantial counterclaims against the judgment debtor for amounts in excess of the debt.

46.His Honour Judge Muttrie refused to make the garnishee order nisi absolute and discharged the same. The learned judge said this at paragraph 18 of the judgment:-

“It seems to be that before any garnishee order can be made the court must be satisfied that there is a debt which can be attached.  If there is a counterclaim which is greater than the debt then ultimately there is nothing due from the garnishee to the judgment debtor on which a garnishee order can operate.  If the garnishee has to pay out money which ultimately it is found not to owe, it might not get the money back.  It seems to me that the effect of the decision in Hale v Victoria Plumbing Co and En Tout Cas Co is that until such counterclaim is resolved, the debt should remain unattached and no garnishee order should be made.”

47.When the case went to appeal in CACV 237/2004, the Court of Appeal said this in the judgment:-

“Paragraph 58

The judge, at most, was just making the observation that if Dragon had a valid counterclaim exceeding the Debt, there would be no debt to garnishee or to assign.

Paragraph 59

The judge should have adjourned Vallat’s application to make the garnishee order absolute or stay the order until the disposal of Dragon’s counterclaim and/or Antares’ claim for a declaration that the assignment was valid.

Paragraph 64

We do not propose to set aside any of the judge’s orders except to clarify, for the avoidance of doubt that the garnishee order nisi is set aside without prejudice to Vallat’s right to re-apply.”

48.Mr Sakhrani also relies on the case authority of Schofield v Church Army [1986] 1 WLR 1328.  The background of the case can be found at pp 1329 to 1330 of the judgment:-

“On 4 February 1985 the applicant, Leslie Schofield, obtained an award in the industrial tribunal against the defendants, the Church Army, for payment of 8,370 pounds as compensation for unfair dismissal.  After certain recoupment provisions the sum due to the applicant was 7,391.67 pounds and 58 pounds costs.  The order of the tribunal provided that if the defendants failed to pay any such sum forthwith the sums remaining should be recoverable as if payable under an order of the Woolwich County Court.  The defendants informed the applicant that they did not intend to pay the money pending the hearing of the High Court Action they were bringing against him which had been begun by writ dated 1 February and served on 21 February 1985.

On 22 March 1986 the applicant’s solicitor applied ex parte to the Woolwich County Court to register the award in the county court.  On 11 June the solicitor applied to the county court for a garnishee order nisi to attach the defendants’ bank account with Barclays Bank.  That order was made and the bank paid into court, pursuant to Ord. 30, r 4 of the County Court Rules 1981, the sum of 7,461.67 pounds, representing the judgment and further costs.  On 23 July the applicant’s solicitor applied to Mr Deputy Registrar Lamdin to have the garnishee order made absolute.  The defendants opposed the application and the deputy registrar refused to make the order absolute.  The applicant appealed to Judge James and on 19 September he reversed the order of the deputy registrar and ordered that the money be paid out to the applicant’s solicitors.  He refused leave to appeal.”

49.The defendants then appealed to the Court of Appeal.  Dillion LJ held that the scope of the court’s discretion in ordering, or refusing to order payment out of court under Ord 30, r 6 of the County Court Rules 1981 was the same as the scope of the discretion of the High Court under R S C, Ord 47, r 1(a) to stay execution of a judgment by writ of fieri facias where “there are special circumstances which render it inexpedient to enforce the judgment.”

50.At the end of the day, the English Court of Appeal allowed the defendants’ appeal and discharged the order of Judge James.  The money in court was kept in the Woolwich County Court until further order and placed on deposit by the court.  Croom-Johnson LJ said this at 1339D of the judgment:-

“If the money is paid out and the Church Army should subsequently be successful in their action against him, there must be a risk that they will be unable to recover their money.  In those circumstances the judge should not have ordered the payment out of the money in court.”

51.Another case authority referred to by Mr Sakhrani is Credit Lyonnais v SK Global Hong Kong Ltd [2003] 4 HKC 104.  In that case, Chief Judge Ma of the High Court (as he then was) stated his views on the court’s power to stay the execution of a judgment at 107D to 108A:-

“The existence of an inherent jurisdiction to stay execution must not, however, be confused with the exercise of it.  The exercise of the discretion whether or not to order a stay of execution must be made in accordance with principle.  In various parts of her judgment, Chu J referred to the ‘balance of convenience’ [see [2003] 3 HKC 569 at 575C, 576E].  In my view, this was not the appropriate test.  While it would not be right to set out an exhaustive list of relevant factors for the exercise of the inherent jurisdiction in this context, it is important to bear in mind that the jurisdiction will only be activated where an injustice would otherwise be caused, to prevent abuse, to preserve the dignity of the court or to facilitate the administration of justice.

Where, as in the present case, a party (the judgment creditor) has obtained a judgment against another party (the judgment debtor), the starting (and often, finishing) point is that the judgment creditor should be able to take all legitimate measures to enforce that judgment.  That is, after all, his right.  The various ways of enforcing a judgment, are of course set out in RHC O45.

Exceptionally, however, the judgment creditor may be prevented from levying execution.  I emphasize the exceptional nature of this, for the court is in these circumstances being asked to deprive a successful party of the fruits of the judgment he has obtained.  The exercise by the court of its jurisdiction to stay execution under O 45 r 11, O 47 r 1 and O 59 r 13 demonstrates this.  Thus, a stay of execution may be granted where:-

(1) New evidence emerges after the relevant judgment, showing that it was not valid:  see Tam Ho Man v Wong Kwok Tai (HCA 4736/1985, Hunter J, 20 October 1986) digested at [1986] HKLY 705.  This case dealt with the court’s jurisdiction under RHC O 45 r 11.

(2) In certain circumstances, the judgment debtor has a claim against the judgment creditor yet to be determined.  This may even include situations in which the corporate veil should be pierced: see Burnet v Francis Industries plc [1987] 1 WLR 802 (a case dealing with the UK equivalent of RHC O47 r1).”

52.Mr Hudson, for the judgment creditor, tries to distinguish the case of Vallat Maurice Henri Roland v Phoenix Telecommunication Limited & Others, DCMP 3402/2003 and CACV 237/2004, on the following grounds:-

(a) The case was about the garnishee having a counterclaim against the judgment debtor and has no application here when it is alleged that the judgment debtor has a counterclaim against the judgment creditor.

(b) The judgment creditor in the case Mr Vallat was acting in person before His Honour Judge Muttrie and was absent at the hearing before the Court of Appeal.  Therefore, the relevant provisions of the Employment Ordinance relied on by Mr Hudson at this hearing were not drawn to the attention of the learned judge and the Court of Appeal.

(c) The key issue in that case was whether the debt, which was the subject matter of the garnishee order nisi, had been validly assigned at an earlier stage to the intervening party Antares LLC.  There is no such issue in the present case.

53.My views on the points raised by Mr Hudson about the Vallat case are as follows:-

(a) While it is true that the Vallat case concerned the garnishee’s counterclaim against the judgment debtor and the present case concerns a claim by the judgment debtor against the judgment creditor in HCA 1372/2013, I do not see such a distinction would make the case authority inapplicable in the present case.  Judge Muttrie was concerned that if the garnishee had to pay out money which ultimately it was found not to owe, it might not get that money back.  In the present case, if there is a final judgment in HCA 1372/2013 against the judgment creditor and MB in favour of the judgment debtor which exceeds the 1^st Award and the 2^nd Award, by ordering the garnishee DBS Bank (Hong Kong) Limited to pay the judgment creditor, this involves a risk that the judgment debtor might not get its money back.  In other words, the identities of the parties that might be prejudiced are different in the Vallat case and in the present case but the causes for concern are the same.

(b) As discussed earlier, the sections of Employment Ordinance cited by Mr Hudson have no direct relevance to the present case as I am not determining whether an offence has been committed under the legislation.  The fact that those sections were not drawn to Judge Muttrie’s and the Court of Appeal’s attention in the Vallat case has no bearing on the applicability of the case authority.

(c) Judge Muttrie and the Court of Appeal in the Vallat case were facing the additional issue of whether the debt owed by the garnishee to the judgment debtor had validly been assigned to the intervening party earlier. There is no such additional issue in the present case.  But this does not make the Vallat case inapplicable.  In any event, the additional issue was not ruled on by Judge Muttrie and the Court of Appeal as it could not be resolved by way of summary trial on affidavits.

54.Mr Hudson also seeks to distinguish the case of Schofield v Church Army [1986] 1 WLR 1328 by saying that it was about compensation for unfair dismissal in the United Kingdom while this case is about wages owed to the judgment creditor. 

55.I do not think such a distinction would make the case authority inapplicable.  As said earlier, we are not talking about wages here anymore. We are at the enforcement stage and the issues that need to be addressed are whether the 1^st Garnishee Order and the 2^nd Garnishee Order should be made absolute or discharged or set aside; and, if not, whether there should be a stay of execution.  The English Court of Appeal was concerned that if money was paid out to the judgment creditor Schofield and the judgment debtor should subsequently be successful in their action against him, there must be a risk that the judgment debtor would be unable to recover their money.  There is the same concern for the judgment debtor in the present case.

Latest Development in HCA 1372/2013

56.Before this court hands down judgment, the solicitors for the judgment creditor sent a letter to the court dated 23 May 2014, with copy to the solicitors for the judgment debtor, stating that the final judgment in HCA 1372 of 2013 against the judgment creditor had been set aside by Master M Wong of the High Court on 23 May 2014.

Conclusion

57.Assuming what is stated in the letter dated 23 May 2014 from the judgment creditor’s solicitors is the true position, the judgment debtor’s claim against the judgment creditor and MB in HCA 1372/2013 will need to be adjudicated by the Court of First Instance.  There is still a possibility that at the end of the day the judgment debtor might obtain a judgment against the judgment creditor and MB which exceeds the 1^st Award and the 2^nd Award.  If sums are now ordered to be paid to the judgment creditor pursuant to the 1^st Garnishee Order and the 2^nd Garnishee Order, there is a risk that the same might not be recovered from the judgment creditor.

58.In light of the aforesaid risk and in view of the Court of Appeal’s approach in Vallat Maurice Henri Roland v Phoenix Telecommunication Limited & Others, CACV 237/2004, I would not make the 1^st Garnishee Order and the 2^nd Garnishee Order absolute.  I would not discharge or set aside the same.  But I would order a stay of execution pending the final determination of HCA 1372/2013.

59.Therefore, in respect of the judgment debtor’s summons filed on 24 January 2014, I order that:-

(a) Execution of the Labour Tribunal Awards/Orders dated 18 July 2013 and 12 August 2013 in LBTC Nos. 215 of 2013 and 579 of 2013 (including by way of garnishee orders to show cause issued in these proceedings) be stayed until further order of the court.

(b) There be liberty to apply.

60.Costs should follow the event.  I grant a costs order nisi to be made absolute within 14 days that the judgment creditor do pay the judgment debtor the costs of and occasioned by the judgment debtor’s summons filed on 24 January 2014, to be taxed if not agreed, with certificate for counsel.

Mr Richard Hudson, of Deacons, for the plaintiff (judgment creditor)

Mr Sanjay Sakhrani, instructed by Hart Giles, for the defendant (judgment debtor)

Garnishee absent