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International Associated Attorneys Ltd v Eurostock Energy Ltd

Judgment Cited authorities 12 Cited in Precedent Map Related
Vincent
Judgment Date05 October 2012
Year2012
Judgement NumberHCA180/2012
Subject MatterCivil Action
CourtHigh Court (Hong Kong)
HCA180/2012 INTERNATIONAL ASSOCIATED ATTORNEYS LTD v. EUROSTOCK ENERGY LTD

HCA 180/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 180 OF 2012

____________

BETWEEN

INTERNATIONAL ASSOCIATED ATTORNEYS LIMITED Plaintiff
and
EUROSTOCK ENERGY LIMITED Defendant
and
STANDARD CHARTERED BANK (HONG KONG) LIMTIED Garnishee

and
SECRETARY FOR JUSTICE Intervener

____________

Before: Hon Au-Yeung J in Chambers (Not Open to the Public)

Date of Hearing: 18 September 2012

Date of Decision: 5 October 2012

_____________

D E C I S I O N

_____________

1. The plaintiff (“IAA”) applies, as a judgment creditor, for a garnishee order to be made absolute. The Secretary for Justice (“SJ”), as an intervener, opposes it on the ground that the funds are subject to a restraint order.

The background

2. Pursuant to requests for legal assistance from the German government, the SJ obtained, under the Mutual Legal Assistance in Criminal Matters Ordinance, Cap 525 (“the MLAO”), a restraint order on 21 July 2010 under HCMP 1346 of 2010 (“the Restraint Order”), restraining the defendant (“Eurostock”) from dealing with all monies held with 2 bank accounts of its with the Standard Chartered Bank (Hong Kong) Ltd (“the SCB Accounts”). As of that date, the credit balance in the SCB Accounts was around HK$14,800,000. The Restraint Order was continued by Tong J on 7 September 2010.

3. The matter originated from a conspiracy to commit fraudulent tax evasion and money laundering connected with trading of carbon remission credits investigated in Germany. The tax evasion scheme was allegedly traced to Eurostock. There were transfers in and out of the SCB Accounts and other bank accounts of the suspects that were suspected to be of criminal origin and linked with the tax fraud. The 3 affirmations of ISY in the hearing bundle A filed on behalf of the SJ contained details of the scheme. The proceeds of crime laundered through the accounts of the Eurostock were well over €6,595,000 during the period from December 2009 to 11 March 2010.

4. The criminal investigation and proceedings in Germany are ongoing. It is anticipated that a confiscation order will be made upon completion of those proceedings against, amongst others, Eurostock, including its SCB Accounts.

5. Meanwhile, one Mr Pelfania was a client (“the client”) of IAA. In March 2010, Mr Pelfania allegedly asked IAA to act on his behalf in transferring €380,000 to Eurostock to effect purchase of energy stock options. Eurostock was allegedly the official agent for the 2 energy trading European companies issuing the stock which the client wanted to invest in.

6. IAA made 2 transfers totalling €380,000 from its bank account to one of the SCB accounts no. XXX-XXX-XXX-74:

(i) €170,000 on 23 March 2010;

(ii) €210,000 on 7 April 2010.

7. In the summer of 2010, the purchase of the stock options allegedly fell through. The client instructed IAA to seek the return of the €380,000 from Eurostock and to manage the recovery process.

8. Eurostock did not know why the transaction had fallen through but agreed to return €380,000 to IAA. SCB, however, declined to release the money in view of the Restraint Order.

9. IAA failed to convince Tong J to vary the Restraint Order: see the decision dated 28 October 2011 in HCMP 1346 of 2010 (“the Decision”).

10. IAA subsequently took out the present action on 3 February 2012 against Eurostock, seeking payment of the liquidated sum of €380,000. Eurostock failed to acknowledge service of the writ. IAA obtained default judgment on 8 March 2012.

11. Eurostock failed to pay the judgment debt. On 25 April 2012, IAA obtained a garnishee order to show cause in relation to the SCB Accounts for payment of the judgment debt plus interest and costs. On 25 May 2012, SJ was joined as an intervener in these proceedings.

The parties’ respective stance

12. IAA seeks to have the garnishee order made absolute. Its counsel Mr Ng SC, leading Ms Queenie Lau, draws to my attention that there is no allegation that IAA or the client was involved in the alleged criminal activities in Germany. Nor is there any allegation that the €380,000 transferred by IAA into Eurostock’s SCB Account was directly or indirectly connected with the alleged criminal offences complained of. SJ is not in a position to challenge that Eurostock had failed to return the money to IAA. Specifically, the client’s deposit of the €380,000 into the account of Eurostock took place beyond the period of money laundering identified by the German authorities, i.e. after 11 March 2010.

13. SJ opposes the application on the following grounds:

(A) A garnishee order absolute will conflict with the Restraint Order and is contrary to Order 49, rule 1 of the Rules of the High Court (“RHC”).

(B) It is an abuse of the process of the court to use the present proceedings to recover the sum of €380,000 after an application for variation has been refused by Tong J in HCMP 1346 of 2010.

(C) Under the law on garnishee order, the plaintiff’s default judgment is subject to the earlier Restraint Order.

(D) In terms of the law under the MLAO, unsecured creditors have no priority claim over assets which are subject to a Restraint Order.

14. It may be useful to examine the scheme under Order 49, RHC and that under the MLAO.

The scheme under Order 49 of the Rules of the High Court

15. Under Order 49, rule 1 of the RHC, the court may,

“Subject to the provisions of this Order and of any written law, order the garnishee to pay the judgment creditor the amount of any debt due or accruing due to the judgment debtor from the garnishee, or so much thereof as is sufficient to satisfy that judgment or order and the costs of the garnishee proceedings” (emphasis added)

16. The court has the discretion to make or refuse to make a garnishee order absolute. The question is whether there is any “reasonable ground” why the garnishee order should not be made absolute: Rooke & Another v HV Construction Services Ltd. v MK Lam & Co (a firm) [1998] 2 HKLRD 319 at 323B.

17. The starting point is that a judgment creditor is entitled to enforce the judgment he has secured against the judgment debtor. It is usually not necessary to consider the interests of non-parties except in circumstances like where the judgment debtor was in the process of being wound up or where liquidation or some form of scheme of arrangement was imminent. In Credit Lyonnaisv SK Global Hong Kong Ltd [2003] 4 HKC 104,Ma CJHC (as he then was) held as follows:

“8(1) The starting point is that a judgment creditor is entitled to enforce the judgment he has secured against the judgment debtor.

(2) In any event, as a matter of principle, it is somewhat difficult to see why the interests of non-parties (such as the defendant’s other creditors or even its Korean parent’s creditors) should be taken into account by the court in the first place. A civil action between two or more parties is normally one in personam, where the court is required to adjudicate on the rights and liabilities as between those parties alone. Were it otherwise, non-parties would then be able to have locus standi to intervene in that action. This is of course possible under RHC O 15 r6 but the circumstances in which intervention is permitted under that rule are somewhat circumscribed. They certainly would not cover intervention by creditors of a defendant unless those creditors had some interest directly related or connected to the subject matter of the action. (at page 108 D-G).

…

(4) The only situation in which the courts have appeared to take into account broader interests when considering question of execution, have been where the judgment debtor was in the process of being wound up or where liquidation or some form of scheme of arrangement was imminent… Here, the court is not so much taking into account the wishes of non-parties as recognizing that it must not allow a situation to occur that would be contrary to statute (viz the statutory scheme for the orderly and fair distribution of an insolvent company’s assets to its creditors) or would usurp the jurisdiction of other courts (such as the Companies Court).”

18. Or there may be situations where other proceedings for enforcement are on foot, in which event, the court may take into account the interests of other parties: Rooke & Another v HV Construction Services Ltd v MK Lam & Co. (a firm) [1998] 2 HKLRD 319, 323B-C.

“In considering whether or not to exercise its discretion to make absolute a garnishee order, the court must bear in mind not only the position of the judgment creditor, the judgment debtor and the garnishee, but also the position of other creditors of the judgment debtor; and have regard to the fact that proceedings are on foot for enforcing the distribution of the available assets of the judgment creditor among creditors pari passu.” (per Godfrey JA)

19. Closely related to these principles is the rule of chronological priority from which any departure must be justified. In the absence of a stay, a successful plaintiff may enforce his judgment against the defendant as it is given: Cox v Bankside Members Agency Limited [1995] 2 Lloyd’s Rep 437.

20. The situation is no different where the funds to be garnisheed are subject to a Mareva injunction obtained by someone other than the successful plaintiff. The purpose of a Mareva injunction is not to prevent creditors from exercising their rights. In Re Ling Ex parte Enrobook Pty Ltd (1996) 142 ALR 87, 92-3, the Federal Court of Australia described the character of Mareva relief:

“It deprives the party subject to its restraint neither of title to nor of possession of the property to which it extends. It does not create a security...

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