CHINA DRAGON INTERNATIONAL LTD v. PANG HONG

Date of Hearing:  9 February 2007

Date of Decision: 9 February 2007

Date of Reasons for Decision:  26 February 2007

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R E A S O N S  F O R  D E C I S I O N

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1.  There were 3 summonses before me:

(1)     The defendant’s interpleader summons dated 19 December 2005;

(2)     The defendant’s summons dated 24 December 2005 to set aside the judgment entered in default of defence and in breach of an unless order to file and serve his defence;

(3)     The summons by Pacific Electric Wire & Cable Co Ltd (“PEWC”) to join as the 2^nd defendant.

2.  At the hearing, I dismissed the interpleader summons, and set aside the default judgment and ordered that PEWC be joined as the 2^nd defendant.  I now give my reasons.

Background

3.  The plaintiff issued the writ on 22 September 2005 and claimed against the defendant for conversion and the return of RMB2,515,861.74.  The plaintiff alleged that the defendant was the Chief Representative of the plaintiff’s office in Beijing.  The said sum was the balance of deposits placed by the plaintiff with a bank in Beijing and the defendant possessed the chops operating the bank accounts and was solely entitled to access and retrieve the balance.

4.  The defendant obtained 3 extensions of time to file his defence, the last being the unless order ordering him to file his defence by 5 pm on 21 December 2005, failing which the plaintiff be at liberty to enter judgment as claimed in the Statement of Claim.

5.  On 17 December 2005, shortly before the expiry of time under the unless order, the defendant took out an interpleader summons joining PEWC as the claimant, and to stay the proceedings herein, or alternatively, to extend time for filing the Defence within 14 days after disposal of the interpleader summons.

6.  In support of the interpleader summons, the defendant affirmed that back in September 2004, PEWC issued proceedings against him and others in HCA 2203/2004.  The defendant was concerned that should he pay the balance over to the plaintiff, he would find himself faced with claim by PEWC in respect of the same funds.  On 24 December 2004, he transferred RMB 2.7 million to an attorney in Beijing as stakeholder, pending clarification of the ultimate beneficial ownership. 

7.  PEWC was incorporated in Taiwan.  In HCA 2203/2004, PEWC sued, inter alia, 3 of its directors Hu Hung Chiu, Tung Yu Jeh and Sun Tao Tsun for breach of fiduciary duties in making unauthorised investments without the knowledge of PEWC, and it also sued persons including the defendant in knowingly assisting the breach of fiduciary duties, and companies holding the assets acquired as a result of the breach of fiduciary duties.  The unauthorized investments included the shares in PacMos Technologies Holdings (formerly known as Win Win International Holdings Limited).  The relief claimed against the defendant included the declaration of trust in respect of assets handled by him and order for transfer.

8.  On 15 November 2004, Hu, Tung and Sun were indicted in the District Court in Taipei for false accounting and misappropriation.

9.  After the service of the writ in the Win Win action, solicitors for PEWC wrote to the defendant on 6 December 2004 putting him on notice that PEWC was the beneficial owner of all the assets acquired by the fraudulent conduct of Hu, Tung and Sun, and the PWEC was making compendious claims not restricted to the Win Win shares.

10.  Back to the present case, the interpleader summons was returnable before the Registrar on 28 December 2005.  On 22 December 2005, the defendant wrote to the plaintiff’s solicitors requesting them not to enter default judgment notwithstanding the unless order pending the hearing of the interpleader summons.

11.  On 23 December 2005, the defendant went ahead to enter default judgment.  On 24 December 2005, the defendant took out the summons to set aside the default judgment, and for the stay of the execution of the judgment, returnable also on 28 December 2008. 

12.  The Registrar adjourned both summonses before him, and granted a stay of execution of the default judgment in the meantime, recording the defendant’s undertaking not to instruct the stakeholder to dispose of the funds otherwise than in accordance with an order of the Hong Kong court.

13.  The plaintiff appealed to a judge in chambers against the stay of execution.  The appeal was heard before Barma J on 17 March 2006, and his Lordship dismissed the appeal.

14.  On 31 January 2007, PEWC took out a summons to be joined as the 2^nd defendant in the action herein.  The plaintiff claimed to be the ultimate beneficial owner of the plaintiff.  PEWC claimed that it wholly owned PCL Holdings Ltd, which in turn wholly owned Pillion Investments Ltd.  In respect the RMB2.5 million at suit, it is common ground between the parties that the funds came from Pillion.  PEWC also claimed that the other source of funds of the plaintiff came from PCL Holdings.

Setting aside

15.  Mr. Shum for the defendant submitted that the default judgment was irregularly obtained, and should be set aside ex debito justitiae.  His grounds were:

(1)     The plaintiff wrongly entered final judgment for a liquidated sum instead of interlocutory judgment for damages for conversion.

(2)     The plaintiff ought not to have entered judgment on an ex parte basis, but should have taken out an inter partes application, as the defendant had already taken out the interpleader summons before the expiry of the time under the unless order.

(3)     The plaintiff failed to make full and frank disclosure of the interpleader cum time summons and the defendant’s request to withhold any application for judgment when applying ex parte to enter the default judgment.

(4)     The plaintiff defeated the due administration of justice by stealing the defendant’s march in the interpleader cum time summons.

(5)     The defendant’s non-compliance of the unless order was neither intentional nor contumelious and the action should proceed as it would have as if the default had not taking place.

16.  Mr. Shum submitted that under O.19, r.4(1), where the plaintiff’s claim against a defendant relates to the detention of goods only and the defendant fails to serve a defence, the plaintiff may enter interlocutory judgment against the defendant for the delivery of the goods or their value to be assessed. 

17.  However in this case, the plaintiff claimed the balance of the bank deposits, which is a sum certain expressed in money terms, and there is nothing to be assessed.  Hence, I find that the plaintiff could have entered final as opposed to interlocutory judgment.

18.  Mr. Shum submitted that the plaintiff ought not to have applied ex parte to enter the default judgment under the unless order.  He relied on Lau Chi Wang & ors v. Ip Fook Chuen & anor [2003] 1 HKLRD 486 where the master ordered that unless the defendants do file an affidavit giving specific discovery, the defence would be struck out and judgment be entered for the plaintiffs.  The defendants filed an affirmation setting out documents which were claimed to fall within the order.  The plaintiffs considered that the affirmation did not comply with the order.  Sakhrani J held that unless order was a time order.  Discovery was made by the affirmation and it was not illusory.  There was a genuine conflict of opinions which could only be resolved by further adjudication.  Hence, the plaintiffs ought not have entered judgment on an ex parte basis and should have taken out an ex partes application, and the judgment was irregular on that basis.

19.  In the present case, the unless order was a time order.  But the taking out of an interpleader summons could not be said to be in compliance of the unless order, nor would the application for extension of time until after the determination of the interpleader summons deprive the plaintiff the right to enter judgment.

20.  An application for extension of time will not stop time running, nor will it prevent the plaintiff from entering or applying for default judgment under O.19, RHC, and extension of time should be applied for at the earliest opportunity, if necessary, with a summons applying for abridgment of time (see Schindler Lifts (Hong Kong) Ltd v. Ocean Joy Investments Ltd per Ma J (as he then was)).

21.  An unless order confers on the other party an accrued right to execute the sanction, and in this case to enter judgment, and the unless order cannot be complied with by doing something which is not apparent on the face of the order (see Dongguan Dongxiang Decoration Co Ltd v. Universal Right Ltd [1999] 1 HKC 790 per Barnett J – the decision was allowed on appeal but on other points).

22.  Mr. Sun for the plaintiff accepted that when the defendant was sued, it was open to him to take out an interpleader summons, but it must be taken out early enough for it to be heard before the expiry of the unless order.  I agree with Mr. Sun that with the unless order, the defendant run the risk of judgment entered unless a defence was filed within the time stipulated.

23.  I also do not see any point in the plaintiff not disclosing the interpleader cum time summons upon applying to enter judgment.

24.  Mr. Shum further submitted that once it is shown that the non-compliance of the unless order was not intentional nor contumelious, the action should proceed as it would have done if the default had not been taken place.  He referred to my judgment in China Interbational Water & Electric Corp v. Talford Development Ltd & anor HCA 36/2004, where I distinguished Golden Tech (Asia) Ltd v. Po Yuen (To’s) Machine Factory Ltd HCA 4517/2001 per Deputy Judge Poon (as he then was) and followed Chow Kai Sang v. Toi Samuel [1996] 4 HKC 330 per Keith J (as he then was) in holding that the requirement on the party in default to demonstrate by credible evidence that he had a real prospect of success does not apply to judgments entered for failure to comply an unless order. 

25.  I find that the defendant’s non-compliance was neither intentional nor contumelious, but that is not the end of the matter.

26.  In the Golden Tech case, the defendant failed to file a defence as ordered by an unless order.  Deputy Judge Poon held that the judgment entered in default was regular and the defendant needs to demonstrate a defence with a real prospect of success.  In the China International Water case, the unless order related to the serving of adequate further and better particulars of the defence, and I saw fit to distinguish the Golden Tech case on the facts.  In Chow Kai Sang v. Toi Samuel, the unless order also related to further and better particulars of pleading.  However, in the present case, the unless order related to the filing of defence as in the Golden Tech case, and with respect, I consider the ruling of Deputy Judge Poon as apposite.  If the judgment were simply entered in default of defence without any unless order, the defendant would need to show merits.  I cannot see that he should be in a better position where he was actually in breach of an unless order. 

27.  Hence, I find that the judgment was regularly entered and the defendant is required to show merits in setting it aside.  I shall return to the merits later.

Interpleader

28.  Mr. Shum submitted that the defendant as agent may interplead even as against the plaintiff as his principal.  He refers to Bowstead and Reynolds on Agency (18^th ed., 2006), Article 70:

“(1)     Where adverse claims whether legal or equitable are made upon an agent in respect of any money, goods, or chattels in his possession, and he claims no interest in the subject-matter of the dispute other than for costs or charges, he may claim relief by way of interpleader, even as against his own principal whose title he has acknowledged, provided that he had no notice of the adverse claim at the time of the acknowledgment.”

29.  In Tsun Fat Finance Co Ltd v. Commissioner of Police HCA 7017/2000, I referred to Belcher & ors v. Smith (1832) 9 Bing 82; de laRue v. Henru, Peron & Stockwell Ltd [1936] 2 KB 164; NYK (Hong Kong)Ltd v. Wilfond Ltd & anor [1997] 3 HKC 127 and Unionix DevelopmentLtd v. Roe Investment Ltd & anor [1999] 1 HKC 593 on the law relating to interpleader.  The principles can be briefly stated as follows:

(1)     Where 2 or more persons claim the same thing or fund, the holder of the thing or fund does not claim any interest in the property, and not knowing to which of the claimants he ought to deliver the property, and he is sued or fears that he may be sued by some of them, he may apply for interpleader relief against the claimants.

(2)     The relief is discretionay and it will not be granted unless there appears to be some real foundation that the applicant may be sued.

(3)     The applicant does not in any manner collude with any claimant, or has not voluntarily put himself into the situation from which he calls on the court to extricate him.

(4)     He is ready to bring into court, or to pay or dispose of the subject matter of the action in such manner as the court may direct.

30.  Mr. Suen submitted that the defendant had colluded with PEWC and had voluntarily put himself into the situation from which he called on the court to extricate him, and should be denied interpleader relief.

31.  In Murietta & ors v. The South American Etc Co Ltd & ors  (1893) 62 LJQB, 396, 397, Wills J said that:

“… Colluding may be said to be an equivalent for playing the same game.  That is the literal meaning of the word.  Here the applicant has identified himself in interest – he has a strong interest that one side should succeed rather than the other.  In my opinion one of the things intended when these rules were drawn was that the stakeholder who claimed the benefit of the Act should be in a real position of impartiality between the parties.”

32.  In Famous Zone Electrics Ltd v. Hongkong and Shanghai Banking Corp Ltd & anor [1998] 3 HKC 723, the plaintiff and the claimant were the respective seller and buyer of goods under a purchase order.  They both maintained bank accounts with the defendant.  Payment for the goods was to be effected by transfer of funds from the claimant’s account to the plaintiff’s account.  The claimant cancelled the purchase order but omitted to instruct the defendant to cancel the transfer arrangement, resulting in funds transferred from the claimant’s account to the plaintiff’s account.  At the request of the claimant, the transfer was reversed.  The plaintiff then demanded from the defendant return of the funds out of its account.  When threatened with legal proceedings by the plaintiff, the defendant froze the funds in the claimant’s account.  The defendant also faced simultaneous proceedings by the claimant for wrongfully freezing its account.  The defendant applied for interpleader relief.  Sahkrani J held that collusion as used in O.17, RHC did not necessarily involve anything sinister on the part of the applicant, nor anything morally wrong.  Colluding might be said to be an equivalent for playing the same game.  The freezing of the claimant’s account on being threatened with legal proceedings by the plaintiff was collusion on the part of the defendant.

33.  Mr. Suen relied on the following facts of collusion:

(1)     Originally, the funds were in the plaintiff’s bank accounts.  Upon being sued in the Win Win action, the defendant had meetings with the representatives of PEWC, and he transferred the funds from the plaintiff’s accounts to the so called “stakeholder”;

(2)     The stakeholder is the lawyer for PEWC in related litigation in Beijing concerning the shares in a joint venture company held by Pillion where PEWC claimed the beneficial interest;

(3)     On 24 December 2004, the day the defendant transferred the funds, PEWC wrote to the Beijing joint venture company stating that it had entrusted the defendant to manage its claimed assets in Beijing until judgment of the litigation;

(4)     On 28 January 2005, an agreement was entered into between PEWC and Pillion (as per the defendant as its statutory representative) in that Pillion transferred unconditionally its 55% shareholding in the Beijing joint venture company to PEWC;

(5)     The defendant replaced the existing directors in the Beijing joint venture company nominated by Pillion with representatives nominated by PEWC;

(6)     The defendant refused to carry out the order of his direct employer Pro-Centric Group Ltd to remit funds of Pillion to Hong Kong;

(7)     In proceedings for arrears of wages brought by the defendant against Pro-Centric in the Labour Tribunal in Hong Kong, the defendant stated that when PEWC came in, he gave the money to PEWC and he did not take the money himself but he had to retain the money for the true shareholder and investor;

(8)     In his 3^rd Affirmation, the defendant stated that he was defending the action to protect the interest of the true beneficial owner.  This stance was confirmed by Mr. Shum in his skeleton arguments.

34.  Mr. Suen submitted that the defendant was not impartial, but had sided with PEWC, and in effect giving PEWC the benefit of a self help Mareva injunction.

35.  Mr. Shum submitted that collusion should not be interpreted too broadly.  The defendant was made aware of the fraud, hence he resisted the order of remittance by the employer, as a result he was dismissed.  The defendant had not actually paid the funds over to PEWC.  Placing the funds in the hand of the stakeholder did not hamper in any way the real question in the controversy between the plaintiff and PEWC to be decided. 

36.  Mr. Shum referred to Thompson v. Wright [1884] 13 QBD 632 where it was held that an auctioneer taking an indemnity from one of the 2 rival claimants was not taken to collude with the claimant who gave the indemnity.  In that case, Wright directed the auctioneer to take and sell the goods, where Thompson gave notice that the goods belonged to them.  Wright instructed the auctioneer to proceed to sell and gave them an indemnity.  The auctioneer sold the goods and applied for interpleader to try the right to the proceeds.  The master dismissed the application and the judge in chambers order the trial of the interpleader.  Wright moved to rescind the order.  The English Court of Appeal dismissed the appeal as the person objecting to the interpleader was the party who gave the indemnity.  It is obvious that the facts in Thompson v. Wright are very different from the present case.

37.  Mr. Neoh SC for PEWC made the passing comment that the defendant had refused to hand the RMB2.7 million back to PEWC, and the instructions of the stakeholding obliged the Beijing lawyer to act according to the instruction of the defendant only.

38.  In view of the facts referred to by Mr. Suen, and in particular the defendant’s stance in respect of the Pillion shares in the Beijing joint venture company, I found that the defendant had taken side with PEWC.  Hence, I declined to order interpleader relief in the exercise of my discretion.

Joinder

39.  Mr. Neoh submitted that PEWC had a good claim against the assets of the plaintiff:

(1)     In a guarantee dated 1995 signed by Hu, he acknowledged that PCL Holdings was a wholly owned subsidiary of PEWC;

(2)     In a letter by PCL Holdings to the Beijing Foreign Economic and Trade Commission giving notice of the appointment of the defendant as the Chief Representative of the plaintiff, it was stated that the plaintiff was a subsidiary of PCL Holdings, and the capital of PCL Holdings came from Taiwan;

(3)     In the joint venture agreement dated 12 March 1994 between Pillion and China Beijing Hui Zhong Hotel, it was stated that Pillion was a wholly owned subsidiary of PCL Development Ltd (which is a wholly owned subsidiary of PCL Holdings);

(4)     The 2^nd Affirmation of Chung Che Ling, director of the plaintiff, stated that the funds of Pillion came from PCL Holdings.

40.  Mr. Neoh submitted that PEWC had a good proprietary claim against Hu, Tung and Sun for breach of fiduciary duties as demonstrated by the fact that they were indicted for misappropriation.  Hu, Tung & Sun were also directors of PCL Holdings and there is also good proprietary claim against PCL Holdings, and likewise for Pillion, an indirect wholly owned subsidiary of PCL Holdings.  The plaintiff received RMB2.5 million from Pillion without consideration, and it was obliged to hand back to the rightful owner (see Lipkin Gorman (a firm) v. Karpnale Ltd [1991] 2 AC 548). 

41.  As against PEWC, Mr. Suen submitted that the prosecution of Hu, Tung and Sun had not concluded and it was not a forgone conclusion that they were guilty.  Secondly, even if PEWC were the ultimate holding company of Pillion and the plaintiff, it gave PEWC no direct cause of action over the balance as it is trite law that a shareholder is not the owner of the assets of a company in which he holds the shares (see John v. Gore Wood & Co (a firm) [2002] AC 1). 

42.  Mr. Neoh submitted that the web of companies were used by Hu, Tung and Sun to hold the assets acquired in breach of their fiduciaries, and the corporate veil should not avail these companies (see Palmer’s Company Law, 25^th ed., Vol. 1, paras. 2.1519 to 2.1522).

43.  As against the defendant, Mr. Suen submitted that the defendant must account to the plaintiff money held by him as agent, and cannot set up jus tertii against the plaintiff.  Mr. Sun referred to Bowstead & Reynolds, Article 51:

“Subject to the provisions of Article 70, an agent who holds or receives money for his principal is bound to pay over or account for that money at the request of his principal, notwithstanding claims made by third persons, even if the money has been received in respect of a void or illegal transaction.”

44.  As apparent from above, I have ruled against interpleader relief and the exception under Article 70 is not applicable.

45.  Mr. Suen submitted that the defendant might or might be liable to the claims of PEWC, and even if he were so liable, he simply found himself liable to both the PEWC and the plaintiff.  Hence, the defendant had no defence as against the claim of the plaintiff.

46.  As to an agent denying the title of the principal, Bowstead & Reynolds at p. 250 para. 6-112 cited Blaustein v. Maltz, Mitchell & Co [1937] 2 KB 142, 156 per Scott LJ:

“The law is perfectly clear that an agent receiving money rightfully for his principal is not liable in respect of that money to the owner of the money even where the principal, upon receiving it, would be bound to pay it over to the owner.”

47.  But the learned authors commented that it seems that the agent may deny his principal’s title to money (or chattels) received by the agent as a result of the principal’s fraud on a third party.

48.  The plaintiff as the principal of the defendant had affixed him with notice that the funds in question had come from Taiwan. PEWC’s claim against the plaintiff would also be good against anyone who is in control of the funds with knowledge of the interest of PEWC.  Without deciding the matter, the defendant has a substantial defence in not handing the money back to the plaintiff. 

49.  Hence, I ruled that the default judgment be set aside, and PEWC be joined as the 2^nd defendant.

Costs

50.  As I found that the default judgment was regular, I ordered that the defendant do pay the costs of the setting aside and interpleader summons to the plaintiff in any event.  I also ordered that the plaintiff do pay the costs of the joinder summons to PEWC with certificate for 2 counsels.  The end result is that the defendant is to pay the costs of the plaintiff, and the plaintiff is to pay the costs of PEWC.

Date of Hearing: 17 March 2006

Date of Decision: 17 March 2006

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D E C I S I O N

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1.  This is an appeal by the Plaintiff in these proceedings, China Dragon International Limited (“the Plaintiff”), against that part of the order of Mr Registrar Chan dated 28 December 2005 whereby he ordered, among other things, that there should be a stay of execution of a judgment that had been entered by the Plaintiff against the Defendant, Mr Pang Hong (“the Defendant”), on 23 December 2005.

2.  In order to understand how the matter came before Mr Registrar Chan, it is necessary to set out briefly the background to these proceedings and the events leading up to his order.  These proceedings were commenced by a writ issued by the Plaintiff against the Defendant on 22 September 2005.  The writ had endorsed on it a statement of claim in simple terms.  In essence, the Plaintiff’s claim was that the Defendant was the Plaintiff’s representative in relation to its affairs on the mainland and operated a representative office of the Plaintiff in Beijing.  The Plaintiff asserted that it had placed certain funds in a bank account of the representative office with a bank in Beijing, amounting to slightly in excess of RMB 2.5 million.  The control of that account was vested in the Defendant, who was the Plaintiff’s authorised agent in Beijing and who held the relevant chops belonging to the Plaintiff with which to operate the bank account.  The Plaintiff alleged that it had, on a number of occasions, asked the Defendant to return to it the funds that had been placed in that account, but that, despite such repeated demands, the Defendant had failed to return such funds to the Plaintiff.  Against that background, the Plaintiff commenced the present proceedings seeking the repayment to it by the Defendant of the funds standing to the credit of such bank account. 

3.  The Defendant applied for and obtained a number of extensions of time within which to file his defence.  Initially, the Defendant indicated that he intended to dispute the jurisdiction of the Hong Kong courts, or to suggest that Hong Kong was not the appropriate forum for the resolution of the dispute between the Plaintiff and himself.  That matter was ventilated on the first occasion that an extension of time was sought, and the question of whether or not Hong Kong was a suitable forum was apparently determined against the Defendant.  The Defendant was, however, given an extension of time within which to file a defence.  He failed to do so and a further extension was sought.  Towards the expiry of that extended period of time, a further application for an extension of time was taken out.  On this occasion, an unless order was made requiring the Defendant to file his defence by no later than 5 pm on 21 December 2005.

4.  That order stated that the consequence of failure to file a defence would be that the Plaintiff would be free to enter judgment against the Defendant.  However, shortly before that time allowed under the unless order expired, on 17 December 2005, the Defendant took out an application under Order 17 of the Rules of the High Court seeking to interplead in respect of the sums claimed from it by the Plaintiff.  That application was supported by an affirmation by the Defendant in which he deposed to the fact that there had been a claim against him by another party, Pacific Electric Wire & Cable Company Limited (“the Claimant”).  He indicated that in those proceedings, in which there was a very substantial statement of claim filed, allegations were made, which if true, would mean that the Plaintiff was in fact beneficially owned by the Claimant.

5.  The Defendant said that if that were correct, it would follow that the ultimate entity entitled to the assets of the Plaintiff would in fact be the Claimant, and said that he was therefore concerned that if he should pay the funds to the Plaintiff, he would find himself faced with legal action by the Claimant in respect of the same funds.  He went on to say that he did not seek to put forward any claim to beneficial entitlement or interest in the funds and that he therefore wished to interplead and leave it to the Plaintiff and the Claimant to fight out as between themselves the question of who should be entitled to the funds in question.

6.  On taking out this summons and filing the supporting affirmation, the solicitors acting for the Defendant wrote to the Plaintiff’s solicitors requesting that they should not enter any judgment against the Defendant, notwithstanding the unless order, having regard to the interpleader proceedings which had been taken out.  Unfortunately, the plaintiff’s solicitors saw fit to disregard that request and on 23 December 2005 they went ahead and entered judgment against the Defendant on the basis that the Defendant had failed to comply with the unless order.  This was just five days before the interpleader summons was fixed for its first hearing, which was to take place on 28 December 2005 before Mr Registrar Chan.

7.  Faced with the judgment entered against him, the Defendant acted promptly to take out a further summons seeking to set aside such judgment.  That summons was also made returnable before Mr Registrar Chan on 28 December 2005.  When the matter came before Mr Registrar Chan, all the parties – the Plaintiff, the Defendant and also the Claimant - attended and made submissions.

8.  The only evidence filed before Mr Registrar Chan consisted of the Defendant’s affirmation in support of his interpleader summons and an affidavit of the Defendant’s solicitor setting out the background to the entering of the judgment against his client.  However, it appears that the submissions before Mr Registrar Chan were somewhat more wide ranging, in that a number of other matters, not adverted to in the affirmations, were raised.

9.  The first was the question whether or not, if the judgment were to be set aside, or execution on it stayed, a condition should be imposed requiring the Defendant to bring the monies that were the subject matter of the dispute into court in Hong Kong.  As to this it was said on behalf of the Defendant that there might well be exchange control difficulties in doing so.

10.  Another matter that was raised was as to the then current status of the funds, it being revealed that the funds were at that stage in fact no longer held under the control of the Defendant himself, but were under the control of a stakeholder, an attorney in the People’s Republic of China with a Beijing law firm.

11.  There was also, it seems, a suggestion that the Defendant was a person of some substance who owned property in Hong Kong.

12.  At the end of the day, the Registrar adjourned the hearing of both summonses which were before him.  He thus did not rule one way or another on either the application to set aside the default judgment, or the application for interpleader relief.  Pending the substantive hearing of those summonses the Registrar granted a stay of execution of the default judgment.  He did so having expressly noted the defendant’s contention that the funds were currently held by the stakeholder in Beijing and recording the defendant’s undertaking not to instruct the stakeholder to dispose of those funds otherwise than in accordance with an order of the Hong Kong court.

13.  Mr Registrar Chan also gave directions for the filing of evidence in relation to the summonses.  It is clear from the terms of those directions that such evidence was intended to be filed in connection with the interpleader summons, as directions were given requiring the Plaintiff and the Claimant to file (at that stage within 21 days) their evidence setting out their respective claims to the funds that had formerly been held by the Defendant.  Perhaps somewhat unusually, an opportunity was also provided to the Defendant to reply to that evidence 14 days after it had been filed.

14.  The Plaintiff was not satisfied with the outcome of that hearing.  It therefore appealed to this court seeking an order setting aside the stay of execution that been granted.  That appeal eventually came before me on 15 February 2006, about a month ago.  On that occasion the matter was adjourned in order to enable the parties to explore further the possibility of finding a stakeholder who was acceptable to all the parties and for the funds in question to be transferred to that other stakeholder instead. 

15.  I should point out at this stage that, in relation to that suggestion, concerns were expressed on behalf of the Claimant as to possible tax implications that might arise as a result of some other stakeholder being appointed, in particular if a representative office of a Hong Kong law firm were appointed as stakeholder, as it was considered by the Claimant’s legal advisers that there was a risk that, in the hands of such a stakeholder, the funds might be subject to PRC tax of a not insignificant amount.  In the result, it was not possible to reach any agreement as to the identity of an alternative stakeholder and the matter has therefore come back for hearing today.

16.  At the hearing today, Mr Yau, who appeared for the Plaintiff, but who had not previously appeared for the Plaintiff in these proceedings, made a number of submissions.  He submitted that the interpleader proceedings were misconceived and that this was a case in which the Defendant’s application for interpleader relief should be dismissed on the grounds that the Defendant was in effect colluding with the Claimant in relation to this matter.  That, however, is not a matter that is before me for consideration today.  It may be that, notwithstanding the fact that the parties will, by the time the interpleader summons comes on for hearing, have filed what one imagines will be full evidence in support of their respective claims to the matter (the Claimant for its part certainly has done so, whereas the Plaintiff has to date filed a relatively short affirmation asserting its entitlement to the funds in question), it will still be open to the Plaintiff to take the point that this is not a suitable situation for interpleader relief to be ordered at all.  However, that matter is not now before me and I do not propose to say anything more about it today. 

17.  However, Mr Yau did also draw my attention to what he submitted was deliberate delay on the part of the Defendant in progressing this action while it was still in the hands of the Defendant alone to respond to it, and on the part of the Defendant and the Claimant in progressing the interpleader proceedings once directions had been given for evidence to be filed in relation to them.  With respect to Mr Yau, I am unable to agree that there is evidence of any deliberate delay or obstruction on the part of either the Defendant or the Claimant up to this point.  It is fair to say that there has been delay and that such delay has not been short.  That said, however, an explanation for the delay up to the point when the interpleader summons was issued has been provided by the Defendant’s solicitor in his affidavit filed in support of the Defendant’s application to set aside the judgment which had been entered against him.  Equally, from the point of view of the Claimant, it is clear from the nature of its claim in the proceedings to which the Defendant referred in support of his application to interplead that the Claimant’s claim is a complex one, and it has now filed its evidence in support of its claim in the interpleader summons.  That evidence consists of a substantial affidavit supported by four box files of supporting exhibits.  Having regard to those matters, it does not seem to me that I can fairly say that there has been deliberate delay or obstructiveness on the part of either the defendant or the claimant, although there has undoubtedly been considerable delay in the progress of these proceedings.

18.  It seems to me, however, that the real question for determination today is simply whether or not a stay should have been granted in relation to execution of the default judgment that had been entered against the Defendant when he failed to serve his defence as required under the unless order, and if so whether it should have been made subject to some condition involving payment into court, or appointment of a different stakeholder.

19.  In my view, there can be no question that the right course was to grant a stay of execution on that judgment.  At the time when the judgment was entered, the Plaintiff well knew that the Defendant had already applied for directions to be given for an interpleader to be determined as between the Plaintiff and the Claimant.  In those circumstances it seems to me that it was not appropriate for the Plaintiff to have entered judgment against the Defendant, knowing full well that this matter had to be determined.  Even if the Plaintiff was strictly entitled or within its rights to enter that judgment, it seems to me that the Defendant, having applied for it to be set aside, would be entitled to a stay of execution until such time as its entitlement to seek interpleader relief, at least, had been determined.

20.  That being so, I do not think that Mr Registrar Chan can be faulted for granting a stay of execution of the judgment pending the resolution of the application to set aside the default judgment, or pending the resolution of the question of whether or not interpleader relief should be granted and an interpleader directed to be tried.

21.  The question, therefore reduces itself to the relatively narrow one of whether or not conditions should have been imposed on the granting of such a stay.  The only condition that had been proposed at the time when the matter was before the Registrar was a condition requiring payment into court.  At that point, although there was no solid evidence before the Registrar, concerns were expressed as to the possible foreign exchange control implications of that course and in particular as to whether or not it would actually be possible for the funds to be transferred to Hong Kong.  Since then evidence has been filed by both the Plaintiff and the Defendant.  This evidence suggests that there may well be some question as to whether or not it is possible for the funds to be transferred to Hong Kong, and the possibility of a transfer of the funds to Hong Kong and payment into court has not been seriously pursued before me today. 

22.  In those circumstances I do not think it would be appropriate for me to order that the funds be brought into court, since to do so may not be possible.  That leaves the question of whether or not some other terms should be imposed in relation to the stay.

23.  I should point out that initially no point appears to have been taken as to the identity of the stakeholder, and it would appear to have been, perhaps, a source of some comfort to the Registrar that the funds were held by an apparently independent third party.  Today, the Plaintiff has sought to persuade me that it would not be appropriate for the funds to remain with the current stakeholder and that some alternative arrangement should be made.  However, it was not until this morning, by an affirmation that was only prepared last night, that the Plaintiff has put forward some basis for suggesting that the present stakeholder may not be the ideal person to hold the funds.  The Plaintiff’s evidence suggests that the stakeholder is a personal friend of the Defendant and that the stakeholder has previously acted for the Claimant in apparently unrelated proceedings in the People’s Republic of China. 

24.  The Defendant and the Claimant have had no real opportunity to respond to that material, but even accepting that the Defendant has previously described the stakeholder as a friend, or very good friend, of his, and even accepting that the stakeholder has previously acted in other matters for the Claimant, it seems to me that at this stage, with no alternative stakeholder readily available, there is no suitable alternative candidate before the court.  The Plaintiff has previously suggested that the representative office of its firm, or that of the Claimant, should act as stakeholder.  It has also suggested that solicitors who have acted for the Plaintiff in other proceedings in the past, should, through their representative office in Beijing, act as stakeholders.  None of these suggestions have come to anything.  It would appear that by last night, the plaintiff had managed to find one other Chinese law firm to act as a possible stakeholder in relation to this matter.  However, as has been pointed out by those acting for the Defendant and the Claimant, at this stage, the precise terms on which that stakeholder might act are not entirely clear and the question of possible tax consequences that might arise in relation to the stakeholding by that other stakeholder do not appear to have been addressed.

25.  It seems to me also relevant to note that, although the concern as to the existing stakeholder had been put on the basis of his connections with the Defendant and the Claimant, the neutrality or otherwise of any potential stakeholder would not seem to have been a particularly major concern in this case in the past, given that the Plaintiff has itself proposed that its representative office, or solicitors who have previously acted for the Plaintiff, should act as a stakeholder and that it has indeed proposed that either of the law firms acting for the Defendant or the Claimant could also act as stakeholders. 

26.  It does not seem to me that there is any solid evidence to suggest that the integrity of the present stakeholder is open to question, and that being the case, it does not seem to me that the fact that he may have previously acted for some or all of the parties now before me is necessarily a matter that disqualifies him from acting as a stakeholder, particularly in the absence of some other qualified candidate on which all the parties agree.

27.  Mr Yau drew my attention to authority to suggest that it was undesirable for a stakeholder to be appointed where he was chosen by one party, rather than by agreement by all the parties.  Both the Defendant and the Claimant had made it clear that provided a suitable stakeholder can be found and the questions of tax implications addressed, they would have no objection to the funds being stake held by some person other than the present stakeholder.  That has not been possible so far.  I do not rule out the possibility that it may be possible in the future for some suitable stakeholder to be found, and if such a stakeholder is found, it will always be open to the parties to agree that the funds should be transferred to that stakeholder. 

28.  However, dealing with the matter as it stands at the moment, it seems to me that there are no viable alternatives to the existing arrangement and I do not think in any event that the existing arrangement can be said to be one that is unfair or unsatisfactory from the point of view of any of the parties now before me.  I bear in mind the suggestion by Mr Yau, that it would be preferable for the funds to be held by a stakeholder who is a Hong Kong solicitor, but in the light of the fact that there are concerns about the tax implications of doing so, I do not think that it would be appropriate for me to direct that one of the firms representing the parties before me today should be directed to act as stakeholder in the matter.  It certainly would not be possible for me to do that without the consent and agreement of the firm concerned.

29.  In the circumstances, therefore, it seems to me that there can be no real question but that it was appropriate to grant a stay of execution pending the resolution of the summonses that are now outstanding.  Further, it seems to me that there is no reason why the funds should not continue to be stakeheld by the present stakeholder in the People’s Republic of China.  In those circumstances it seems to me that this appeal must fail, and I therefore dismiss the appeal.