ANTARES LLC v. VALLAT MAURICE HENRI ROLAND AND OTHERS

DCMP 3403/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 3403 OF 2003

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BY ORIGINAL PROCEEDINGS

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BY THE DIRECTIONS GIVEN BY THE COURT OF APPEAL DATED 27 JANUARY 2006

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Coram: Deputy District Judge A. Kot in Chambers (Open to Public)

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J U D G M E N T

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1. There are 4 summonses before me involving Antares LLC (“Antares”) and Dragon Investment Company II LLC (“Dragon”):

(i) Dragon's application for payment of its appeal costs out of the security for costs provided (“the 1^st summons”) ;

(ii) Antares' application for an adjournment of the 1^st summons pending directions from the Court of Appeal (“the 2^nd summons”);

(iii) Antares' application for a stay of the payment out stated in the 1^st summons and for Dragon to pay a sum of $650,000 being sum owed to Phoenix Telecommunication Limited (“Phoenix”) under a costs order (“3^rd summons”);

(iv) Dragon's application for the Charging Order nisi to be made absolute against the balance of the security for costs paid into court by Antares.

Background

2.  Mr. Vallat Maurice Henri Roland (“Mr. Vallat”) was formerly an employee and a director of Phoenix and he instituted proceedings in the Labour Tribunal against the latter for arrears of salary.  On 17 August 2003, Mr. Vallat obtained judgment against Phoenix for $592,131.65 with interests and costs.

3.  Phoenix was owed money by Dragon.  In February 2002, Phoenix commenced High Court proceedings, HCMP No. 514 of 2002 to prevent Dragon which was in fact a minority shareholder from presenting a winding up petition against it.  Phoenix won and got its costs.  Madam Justice Yuen on 2 September 2002 ordered Dragon to pay Phoenix the costs of the action.  By an Allocatur dated 2 October 2003, those costs were allowed at a total of $646,243.67 (“the Debt”).

4.  On 11 October 2003, Mr. Vallat commenced the original proceedings in this case for a garnishee order (“garnishee proceedings”).  Antares was granted leave to join as an intervening party to the garnishee proceedings and sought an order for the garnishee order nisi to be discharged on the ground that the Debt due by Dragon to Phoenix had been assigned to Antares (“the Assignment”).  Antares also sought a declaration that the Assignment is valid.  Dragon's stance was that the garnishee order should be discharged on the grounds that it had substantial counterclaims against Phoenix for amounts in excess of the Debt.

5.  At the hearing of the garnishee proceedings on 19 May 2004, His Honour Judge Muttrie (“the Judge”) held that the matter could not be decided on affidavits without cross-examination and Antares' application for discharge was dismissed.  Consequent upon this ruling, it's also ordered that Antares were to pay half of the costs of the garnishee proceedings of Dragon.  Those costs were taxed and allowed at $80,558.34 (“the Action Costs”).

6.  Leave to appeal was granted to Antares by the Judge and it was ordered that costs of the leave application be in the cause of the appeal and Antares were to pay $260,000 into court as security for costs of the appeal (“Security for Costs”).  The Security for Costs is duly paid into court on 19 July 2004.  And costs of the leave application was taxed and allowed at $14,164.00 (“the Leave costs”).

7.  The appeal was heard on 7 February 2005 where the Court of Appeal (“CA”) upheld the Judge's decision but for the garnishee order nisi be set aside.  It is also ordered that Antares were to pay half of Dragon's costs of the appeal.  By an Allocatur dated 30 December 2005, those costs were allowed at a total of $141,820.02 (“the Appeal Costs”).

8.  In the judgment of the appeal, it is stated that “if parties wish the court to make directions on any further conduct of the proceedings in order to resolve the issue relation to the validity of the assignment, the court will be happy to oblige and make such order as may be necessary.  The application may be made on paper”.

9.  On 23 January 2006, Dragon took out the 1^st summons.  On 25January 2006, Antares took out the 2^nd summons and on the same date, wrote to the CA for directions pursuant to what stated in paragraph 8 above.  Directions sought were answered by the CA on 27 January 2006, which inter alia, directed Antares to start the fresh action against Mr. Vallat and Dragon on the validity of the Assignment.  On 2 February 2006, Antares took out the 3^rd summons and on 8 February 2006, Dragon applied for a charging order where a charging order nisi was granted on 1 March 2006.  A statement of claim was filed by Antares on 9 May 2006 seeking a declaration as to the validity of the Assignment.

10.  At this hearing, it is agreed that it is no longer necessary for this court to deal with the 2^nd summons except for the question of costs since the seeking of directions from the CA had already concluded.

Dragon's Case

11.  Dragon submitted that the Appeal Costs is finalized with no appeal or stay and the Security for Costs is specifically for this purpose.  There is no valid ground for it not to be paid out to them.  The situation for the Appeal Costs is different from the Debt in a sense that there is no further dispute as to the Appeal Costs whilst the Debt is a disputed sum and the liability to pay the Debt had to be decided by way of a trial.  There will be cross-claim against Phoenix or Antares over the money as set off.  This is not particularized so far since Antares had not yet claim for its return.

12.  It is also Dragon's contention that the application under the 3^rd summons is misconceived and there is no basis for this application.  The application under the 3^rd summons can be based on Order 49 rule 6 or Order 45 rule 11 of the DCR or under the inherent jurisdiction of this court.  There is no longer a garnishee proceedings so Antares' attempt to frame this application under Order 49 for a stay can't stand.  And the order for payment in by the garnishee is only relevant when there is more than one party making a claim and the garnishee has no dispute in paying the sum.  This is not the case here.  Neither did Order 45 assists Antares since there's nothing happened since the judgment which would justify a stay of execution.  The inherent jurisdiction of this court is only properly invoked so as to enable the court properly to perform its function of administration of justice and the court will use its inherent jurisdiction to prevent an abuse of its own process.  The application for payment in by Antares under the inherent jurisdiction is going far beyond the mareva injunction jurisdiction.  There is no precedent for such a course and no jurisdiction of the court to make such an order.  There is no suggestion by Antares that the administration of justice will be frustrated unless Dragon pays the money into court.

13.  The liability to pay the Leave Costs and the Action Costs is not in dispute.  The Leave Costs should form part of the Appeal costs so for such to be charged over what remains in the Security for Costs is justified.  As for the Action Costs, Antares is a foreign Plaintiff and the Security for Costs is the only assets of Antares which Dragon know of which is within the jurisdiction.  It is reasonable and proper for the Charging Order nisi to be made absolute.

Antares' case

14.  Counsel for Antares submitted that if Antares had to pay the Appeal Costs, Dragon should also be required to pay the Debt into court.  It is also submitted that the contention by Dragon that there was a valid cross-claim is unfounded and not supported by evidence even though there is a third party proceedings against Phoenix in Hong Kong and proceedings against Antares in the U.S.A.  If Antares succeeds in it's claim, Dragon has to pay Antares.  Even if Antares fails, Mr. Vallat is entitled to payment.  The compelling question is who should Dragon pay the Debt.  Where the garnishee is facing more than one party making a claim, the court can and should order payment in pending the resolution of the rival claim (George Lee v Olink [1972[ 1 AER 359].

15.  It is suggested that Dragon should be ordered to make the payment in of the Debt and the payment out to Dragon should be stayed pending the final determination of the claim against Mr. Vallat and Dragon on the Assignment.  In any event, there should not be any payment out before Dragon pays in the Debt.

The 1^st summons – Payment out for the Appeal Costs

16.  I agree with the submission made by counsel for Dragon.  There is no dispute that Antares has the liability to pay the Appeal Costs.  The Security for Costs is clearly paid in for the purposes of settling the Appeal Costs.  I really can't see any valid reason for Dragon to be deprived of this request for payment out.

The 3^rd summons – Stay of Payment Out and Payment in by Dragon 

17.  As conceded, the stay application can only be proceeded based on the inherent jurisdiction of this court.  The inherent jurisdiction should only be exercised when it is just and aquitable to do so.  As stated above, I found no valid reason to deprive Dragon of the Appeal Costs, not even a stay.  To stay the execution of payment out is neither just nor aquitable.  The contention that Dragon had to pay either Mr. Vallat or Antares is misconceived since the liability of Dragon to pay is unsettled before it's cross-claim is being dealt with.  It is not the function of this court to make a finding at this hearing as to whether Dragon's claim is substantiated or not.  As stated in the judgment of the CA, the issue on the validity of the Assigment and the cross-claim of Dragon required a trial.  I found nothing raised by Antares can support a payment in application and to order Dragon to make the payment into court at this stage is unjustified.

4^th summons – Charging Order nisi be made absolute

18.  There is no dispute that Antares has the liability to pay the Leave Costs and the Action Costs which are final.  There is no issue taken that Antares do not hold any beneficiary interests in the Security for Costs.  I found no reasonable cause shown by Antares that the Charging Order nisi shouldn't be made absolute.

Order

19.  I make an order in terms of paragraph 1 of the 1^st summons.  The 2^nd and the 3^rd summonses be dismissed.  The Charging Order nisi dated 1 March 2006 be made absolute.

Costs

20.  There is no reason why costs should not follow the event.  Antares should pay Dragon's costs for all 4 applications, with certificate for counsel, to be taxed if not agreed.  This is an order nisi to be made absolute upon expiry of 14 days.

DCMP3403 /2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS ACTION NO. 3403 OF 2003

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Coram:  Deputy District Judge S. T. Poon in Chambers

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D E C I S I O N

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Background

1. This is an application for security for costs.

2. The background of this case is not without complexities.  Mr. Vallat (“D1”), a former employee and director of Phoenix Telecommunication Limited (“D3”), obtained a Judgment at the Labour Tribunal against D3 for a sum of HK$592,131.65 with interest and costs.  He commenced execution of the Judgment at the District Court and obtained a garnishee order nisi against Dragon Investment Company II LLC (“D2”) for a debt owed by D2 to D3.

3. D2 is a shareholder of D3.  D3 commenced an action in High Court in February 2002 to prevent D2 from presenting a winding up petition against it.  The debt represents the cost order against D2 in favour of D3 in the High Court proceedings. The amount involved is HK$646,243.67.

4. Antares LLC (“P”) is a majority shareholder of D3 and is controlled by an individual shareholder of D3 and her husband. 

5. Before the garnishee order nisi became absolute, P took out a summons as an intervener seeking to set aside the garnishee order on the ground that the debt had been assigned to them by D3.

6. Meanwhile, D2 also sought to set aside the garnishee order saying that they have a valid counterclaim against D3 well exceeding the debt and hence there is no debt payable.

7. The hearing for garnishee order absolute was heard before HH Judge Muttrie.  At the hearing, P also applied to the learned Judge for a declaration that the debt has been validly assigned to P by D3.  On the other hand, D1 maintained that the assignment was a sham with a view to avoiding execution of D1’s Judgment against D3.

8. The learned Judge found that the circumstances under which the debt was assigned was suspicious and refused to make the declaration sought by P.  Nevertheless he ordered that the garnishee order be set aside on the ground that there is a counterclaim of D2 against D3. 

9. Dissatisfied with the Learned Judge’s decisions, P appealed to the Court of Appeal.  D1 did not.

10. The Court of Appeal (Yeung JA, Burrell and Sakhrani JJ.) held that the issue as to whether the debt was validly assigned should be determined first for resolving the disputes between parties and this issue cannot be determined without a trial proper being held.  However, as D1 did not appeal to the learned Judge’s order, the Court of Appeal did not overrule the order made below but clarify that the garnishee order was set aside without prejudice to D1’s right to re-apply.  The appeal was held to be dismissed and P was ordered to pay half of D2’s costs in the appeal.

11. Apart from the above findings, the Court of Appeal also invited parties to seek directions from it for future proceedings of the matter.  Upon such invitation, P wrote to seek directions and the Court of Appeal directed, as proposed by P (except (b) below) that :-

(a) Anatres do file a Statement of Claim in DCMP 3403 of 2003 against Vallat and Dragon. 

(b) Antares be referred to as the Plaintiff.  Vallet and Dragon be referred to as the 1^st and 2^nd Defendants respectively;

(c) Vallet and Dragon do file a Notice of Intention to Defend and Defence(s) within 14 and 28 days thereafter respectively;

(d) Antares do file a Reply within 14 days thereafter;

(e) The parties do file lists of documents within 28 days thereafter;

(f) There be inspection of documents within 14 days thereafter; and

(g) After (a) to (f) are completed, the parties seek further directions in the District Court as to witness statements (if any) and trial.

12. In the letter seeking directions from the Court of Appeal, P also proposed that D2 should be directed to pay the amount of debt into court and that the allocutur of costs against P be stayed.  However, the Court of Appeal refused to accede to these proposals on the ground that “[t]hey are not matters relating to the validity of the assignments.”

13. P filed the Statement of Claim on 9^th May 2006, also naming D3 as the 3^rd Defendant. Apart from the usual “Further and/or other relief” prayer, the only relief sought under the Statement of Claim is a declaration that D3 had validly assigned the debt to P.

14. As P is a foreign company, D2 asked for security for costs and hence the present application.

Discussions

15. P opposed the present application on the grounds that :-

(a) Order 23 rule 1 does not apply in that this is merely an interlocutory proceeding within a garnishee order application and there is no determination of substantive rights and liabilities between P and D2 in this claim;

(b) P does not assume the role of an attacker in substance nor is D2 a defender.  There is no substantial relief sought against D2; and

(c)  P’s chances of success in proving that the assignment was valid are high.

16. Mr. Maurellet, counsel for P, submitted that D2 has no interest in the present relief that P is seeking.  He also put much emphasis on the merits of P’s case.  He submitted that D2 had been taking a neutral position as to the validity of the assignment. There is not much that D2 can do to prove that the assignment was mala fide.  On the other hand, there is evidence from Mr. Cooper who made an affirmation to prove the contrary.

17. Mr. Manzoni, counsel for D2, submitted that the Court of Appeal did not order the commencement of the present action, it is commenced on P’s own volition.  He submitted that the Court of Appeal had decided who is the attacker by giving the directions as to who should be the plaintiff.  As to merits, he stressed that the Court should not consider it relevant in this kind of application unless it is overwhelmingly favourable to the plaintiff.

18. I agree with Mr. Manzoni.  Although the Court of Appeal had indicated a proper way to conduct future proceedings of the present case, the garnishee proceeding, being the subject matter of the present case, had been determined and there was nothing left for the court to resolve but for P seeking directions from the Court of Appeal for future conduct.

19. Besides, P is seeking a declaratory relief that binds at least the defendants if granted.  P had the liberty to not joining D2 in the action.  It is now not open to P to say that the relief does not affect D2’s interest because if it is so, D2 should not be joined in the first place. 

20. Furthermore, the declaration sought clearly affects D2’s interest.  D2 is the debtor of the subject debt and it alleges that there is a counterclaim to set the debt off.  There will at least be a potential dispute as to whether D2 can raise the counterclaim against an assignee should the court rule that the assignment was a valid one.

21. As regard the merits of P’s claim, I agree that D1 and D2 face a certain degree of difficulty in proving that the assignment was a sham or mala fide.  However, I also share the concern of HH Judge Muttrie and the Court of Appeal in relation to the circumstances upon which the debt was assigned, the suggestion of improprieties was not just a bare allegation, it is open to the court to infer improprieties in the circumstances.

22. I am not persuaded that P’s case is so strong that I should exercise my discretion not to order security for cost against P who is a foreign company.

Quantum

23. D2 asks for HK$690,000 as security.  I agree with Mr. Maurellet that the amount is excessive.  The issue relating to the relief sought is a simple one.  D2 cannot demonstrate what more they can do apart from relying on D1’s evidence.  It is not appropriate for this court to consider the history of the parties’ litigations and speculate that there would be similar satellite litigations in the present case.

24. I am of the view that 1/3 of the amount requested is reasonable.

25. I order that P shall give security for costs for D2’s costs in this action by payment into court of HK$230,000 pending which all proceedings brought by P against D2 be stayed.

26. I make a cost order nisi that costs of this application be to D2 in any event to be taxed if not agreed, with certificate for counsel.  This cost order nisi shall be absolute after 14 days.

Mr. Jose Maurellet instructed by Messrs Barlow Lyde & Gilbert for the Plaintiff.

Mr. Charles Manzoni instructed by Messrs Boase, Cohen & Collins for the 2^nd Defendant.

DCMP 3403/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO.3403 OF 2003

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R U L I N G

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1. The plaintiff and judgment creditor, ("Mr Vallat"), who was formerly an employee and a director of the defendant and judgment debtor ("Phoenix") instituted proceedings in the Labour Tribunal against the latter for arrears of salary. On 17 August 2003 he obtained judgment against Phoenix for $592,131.65 with interest and costs.

2. Phoenix was owed money by the Garnishee, ("Dragon"). In February 2002, Phoenix commenced High Court proceedings, HCMP No. 514 of 2002 to prevent Dragon which was in fact a minority shareholder from presenting a winding up petition against it. Phoenix won, and got its costs. Madam Justice Yuen on 2 September 2002 ordered Dragon to pay Phoenix the costs of the action. By an Allocatur dated 1 September 2003 those costs were allowed at a total of $646,243.67. I will refer to those costs as the "Debt". Mr Vallat accordingly applied for a garnishee order nisi and obtained such order in this court on 11 October 2003.

3. On 8 December 2003 the Intervening Party ("Antares") applied to be joined as a party to these proceedings and for the discharge of the garnishee order nisi on the ground that the debt due by Dragon to Phoenix had been assigned to Antares. There are therefore before me two competing applications, that by Mr Vallat to have the garnishee order made absolute, and that by Antares to have it discharged. Antares also seeks a declaration that the assignment is valid. Phoenix is not represented in these proceedings; but Dragon also seeks to have the garnishee order discharged on the grounds that it has substantial counterclaims against Phoenix for amounts in excess of the Debt. It also says that the assignment is not bona fide or valid because its intention is to defraud creditors of Phoenix; and even if it is valid, Dragon has substantial counterclaims in excess of the Debt against Antares.

4. The main issue is whether the Debt owed by Dragon to Phoenix was validly assigned to Antares before the date of the garnishee order nisi, i.e. 11 October 2003.

5. One of the directors of Phoenix, Ms Fox, is a minority shareholder of Antares. Her husband, Mr Shanahan, is the majority shareholder. Antares is the majority shareholder in Phoenix. By late 2002, Phoenix owed a lot of money to its solicitors, Messrs. Barlow, Lyde & Gilbert ("BLG"). In order to ensure that payment was made to BLG, it was agreed that Antares would pay US$125,000.00 to that firm in consideration of the assignment to it of the Debt, the amount of which was then not known because the costs had not been taxed. On 26 November 2002, the Board of Directors of Phoenix, which then consisted of Mr Vallat, Ms Fox, a Mr Elser and a Mr Hassounah held a meeting by conference telephone call at which this agreement was made. The Board agreed that a resolution, approving the agreement was to be signed by all the directors.

6. A draft of the written agreement and a draft of the resolution had been circulated to the directors prior to the Board meeting. Subsequently all the directors except Mr Vallat signed the resolution. It appears that Mr Vallat was in negotiations with Phoenix at that stage about the termination of his appointment. His position is that he, as well as Antares, had to be paid out; but once the agreement had been reached that Antares would be paid out, Ms Fox terminated the negotiations between Phoenix and himself.

7. According to Ms Fox, who has produced the minutes, another Board meeting was held on 18 December 2002, in Dubai. The other directors voted Mr Vallat off the Board with immediate effect and he withdrew. The meeting carried on and the Board resolved to terminate Mr Vallat's employment, instruct BLG to make certain terminal payments to him, and to enter into the agreement with Antares. Other resolutions were made which are not relevant here. According to Ms Fox and Mr Elser, Mr Elser executed the agreement and gave it to Ms Fox.

8. The taxation of the Debt was completed and the Allocatur issued on 1 September 2003. Ms Fox then looked for the executed agreement but could not find it. Another copy was prepared and this was executed on 25 September 2003. Notice of it was given to Dragon by a letter dated 2 October 2003. Dragon says that it received the notice on 8 October but in any event that was before the date of the garnishee order nisi.

9. The argument advanced by Antares is that the bona fide assignment of a debt before the issue of a garnishee order nisi will be sufficient to extinguish a debt in favour of the judgment debtor; Hong Kong Civil Procedure paragraph 49/1/28; Hirsch & Ors. v Coates, Fountain & Ors. (1856) 24 LJCP (NS) 315. By section 9 of the Law Amendment and Reform (Consolidation) Ordinance (Cap. 23) an assignment passes the right to the debt to the assignee on express written notice being given to the debtor. Notice was given before the date of the garnishee order nisi and that is the end of the matter.

10. That is of course the position if the assignment is made in good faith. Both Mr Vallat and Dragon say that it is not. Mr Vallat's argument is, obviously, that the assignment was only made after the Labour Tribunal had given judgment. Antares through Ms Fox says that this is coincidental; she only looked for and failed to find the original assignment executed in December 2002, after the taxation. I do not understand what the taxation had to do with it; from the terms of the agreement it is clear that what was assigned was a proportion of the costs equivalent to US$125,000.00; so there was no need to wait for taxation. I have to say that in all the circumstances, where there are such close connections between the Antares and Phoenix, and where indeed the payment to BLG was made, not by Antares directly but by Mr Shanahan, and where the original assignment was lost, one cannot avoid thinking that getting that assignment (assuming that it really was executed) made effectual by notice cannot ever have been a priority for Antares or Phoenix or Ms Fox (who is the common factor between the two of them) until after the Labour Tribunal had issued its judgment; so the inference is that the action to get a fresh assignment executed and give notice of it to Dragon was taken precisely with a view to blocking any enforcement proceedings which Mr Vallat might take.

11. There is also evidence from Mr Vallat that the Board of Phoenix resolved on 23 September 2003 to allow Phoenix's only valuable asset, namely shares in one Remoco Ltd to be acquired by one Duck Ltd. which is owned by the same persons as own Antares. Ms Fox does not deny this though she seeks to explain the reasons for it. Nevertheless as has been pointed out, in particular by Dragon's solicitor, Mr Cook, there is an obvious inference that Phoenix was seeking to divest itself of all its assets in favour or Antares or those who control it.

12. There is no dispute that the Board meeting of 26 November 2002 did take place and Mr Vallat did agree to the resolution that the agreement be entered into. In failing to sign the written resolution he did not do what he had agreed to do. I do not think that means that he cannot now object to the validity of the assignment. It was open to Phoenix any time after December 2002 to give notice to Dragon and so make the assignment effectual, but it did not.

13. Dragon of course says that the assignment is invalid or of no effect but for different reasons. It relies first of all on a claim which it says it has against Phoenix. In High Court Action No. 1180 of 2003, a firm, Lees and Chiong is suing Dragon for over $9 million for fees and disbursements incurred in the provisional liquidation of one SinoAmerican Telecom Inc. ("SinoAmerican") and Dragon in third party proceedings is seeking an indemnity or contribution from inter alia Phoenix. Mr Hudson, for Antares, says that the affidavits of Mr Collins-Taylor, Dragon's director should be given little weight. It is true that the assertions in them are not well supported by documentary evidence; for instance we do not see the indemnities referred to; but nevertheless it appears that the third party proceedings are on foot and the Third Party Notice in those proceedings was served on Phoenix on 24 September 2003.

14. Dragon argues that a garnishee can avail himself of a set-off or counterclaim which existed before the garnishee order nisi was made; Hale v Victoria Plumbing Co. and En Tout Cas Co., [1966] 2 QB 746. In that case, the matter at issue was whether, at the date of the garnishee order nisi, the garnishee was indebted to the judgment debtor. The garnishee's deponent deponed that it was not and further that the garnishee by reason of the judgment debtor's various breaches of contracts between them had claims against the judgment debtor in excess of the amount claimed by the judgment creditor; and details of those claims had been supplied to the judgment debtor before the date of the garnishee order nisi. Danckwerts LJ said that if that were true it meant that on balance there was nothing due whatever from the garnishee to the judgment debtor on which a garnishee order could operate. Later in the judgment His Lordship said:

It seems to me to be contrary to justice and sense to order that a garnishee should pay out money which it appears probably will not be due from him at all -- because no proceedings have been taken by the judgment debtor against the garnishee, any more than any proceedings have been taken by the garnishee against the judgment debtor. It seems contrary to justice that an order should be made for payment of moneys which on the face of it appear not likely to be due and which might perhaps be paid away irretrievably to a man or company who is in trouble.

15. Dragon further argues that a garnishee order is an equitable remedy and discretionary and should not be granted if the effect would be to prefer one creditor over another. See the Hong Kong Civil Procedure para. 49/1/5. The effect of making the order absolute would be to prefer Mr Vallat to Dragon's own claim (i.e. in the third party proceedings) against Phoenix.

16. So far as Antares is concerned, Mr Collins-Taylor depones to a long and complex history between the parties, in particular in relation to SinoAmerican. I do not think there is any need to go deeply into that history. He also gives evidence relating to proceedings brought by Antares in New York, U.S.A., again without exhibits, in which counterclaims are to be filed by Dragon, to dispute the validity of allocations to Antares of shares in Phoenix. Dragon will therefore dispute the constitution of the Board of Phoenix, and the validity of the Board's resolutions. I do not see that this evidence is of much assistance because it does not appear that, at this stage, there is any counterclaim by Dragon against Antares in those proceedings. However, as I have indicated, Dragon argues that the assignment of the Debt had the effect of depriving Phoenix of its only other known asset. So, in effect, Antares is trying to "clean out" Phoenix in order to defeat the claims of others; and therefore the Debt should not be paid out to Antares any more than it should be paid out to Mr Vallat.

17. I have considerable sympathy for Mr Vallat's plight. He has a judgment from the Labour Tribunal and it is certainly arguable that he should be paid out, and leave the various other parties to dispute among themselves. Unfortunately, however, I do not think that that can properly be done.

18. It seems to me 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 that 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.

19. If the Debt is not to be paid out to Mr Vallat because the question of counterclaim, and therefore indebtedness between Dragon and Phoenix is not yet resolved, it seems to me equally that it should not be paid out to Antares. If there is nothing to attach then there should be nothing to assign. But if that is wrong, the remedy of payment out to a third party in garnishee proceedings is equally an equitable remedy and discretionary. It seems to me that the sale of the Phoenix assets to Duck Ltd. at the same time as Phoenix made the assignment effectual certainly suggests an intention on the part of the directors of Phoenix, most of whom are connected to Antares, to "clean out" Phoenix so as to defeat the claims of others and it would not be proper to make an order which would aid that.

20. I therefore dismiss both the Judgment Debtor's and the Intervening Party's claims, with costs (nisi) in favour of the Garnishee, to be taxed if not agreed. That will include, in the case of the Intervening Party, the reserved costs of the summonses for leave to file the 2nd and 3rd affidavits of Mr. Collins-Taylor.

Representation:

Plaintiff, in person.

Defendant, in person, absent.

Mr. C. Cook of Messrs Boase, Cohen & Collins, for the Garnishee

Mr. R. Hudson of Messrs. Barlow Lyde & Gilbert for the Intervening Party

Appeal by the Intervening Party to Court of Appeal. Appeal dismissed. Please refer to the appeal judgment of CACV237/2004.