ARTHUR ANTONIO DA SILVA AND ANOTHER v. GABRIEL RICHARDO DIAS-AZEDO AND ANOTHER

HCA 2158/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2158 OF 2009

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R U L I N G  ON  C O S T S

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Introduction

1.  I have to rule on the costs of two issues which arise from rulings dated 16 August and 12 October this year upon which I have now received written submissions on behalf of the Plaintiffs (the judgment creditors), HSBC (the garnishee) and Mrs Gardner (the interested party).

2.  The two rulings that I have referred to are in the court papers and so I do not propose to make detailed reference to them. As to the ruling of 16 August, I had to decide whether I needed to set aside the garnishee order absolute, as the garnishee was submitting, or merely to amend it, as the judgment creditors were submitting, so as to insert into the order the correct amount owed by the garnishee to the judgment debtor.  I ruled that it was only necessary to amend the order.

3.  Having made that order I directed that the ruling should be served on Mrs Gardner’s solicitors.  I had been informed by the garnishee’s solicitors that Mrs Gardner had started bankruptcy proceedings against the judgment debtor in respect of a judgment that she had obtained against him for US$9,796,879.63.  It seemed to me that I ought to wait and see whether she objected to my ordering the garnishee to pay out the amount owing to the judgment creditors pending the outcome of her bankruptcy petition.  In the event, she made that objection.

4.  The ruling of 12 October dealt with the question of whether the garnishee should pay out or whether the sum owing should go to the trustee in bankruptcy in the event of a bankruptcy order.  I ruled that there should be no payment out to the judgment creditors.

5.  The costs of 16 August are between the judgment creditors and the garnishee and those of 12 October are between Mrs Gardner and the judgment creditors, and between the garnishee and the judgment creditors. 

Costs of the 16^th August

6.  In respect of this, the argument was won by the judgment creditors.  I ruled that all that was required was an amendment of the order and I dismissed the garnishee’s summons to have the order set aside.  In such circumstances, it might be said with some justification that costs should follow the event.  Not so, says the garnishee.  In garnishee proceedings RHC, O.62 r. 32(4) provides for fixed costs for the garnishee “unless the court orders otherwise”.  The position of a garnishee, particularly a bank, is that it stands as an innocent third party under a duty to make disclosure for the benefit of the judgment creditor so that the expense incurred by it in doing so ought generally to be paid by the judgment creditor.  The fixed costs regime can be displaced by a taxation on a party and party basis, common fund or on an indemnity as may be appropriate.  See Ever Good Trading Corporation v Cheng Ching Kwok trading as Bonanza Industry Co. and Hang Seng Bank & Ors [1988] 1 HKLR 307, where Cruden DHCJ, having considered a line of English cases held, on the facts of that case, the bank garnishee’s costs should be paid by the judgment creditor on a party and party basis.  A similar order is sought by the garnishee on this occasion.

7.  In order to decide what is the correct course to adopt, I need to re-visit what had undoubtedly gone wrong on this occasion. Both sides were in error.  The garnishee order absolute was irregular because the judgment creditors’ solicitors had drawn up the order requiring the garnishee to pay the judgment creditors HK$25,798,065.78 which was the sum that the judgment debtor owed the judgment creditors under their default judgment against him.  The garnishee was also mistaken because it failed to identify and set-off amounts in the credit accounts of the judgment debtor with it.  The garnishee says that these errors were drawn to the attention of the judgment creditors’ solicitors as early as March 2010.  It was not until July 2010 that the judgment creditors’ solicitors proposed rectifying the order.  In between those dates, there was correspondence between the garnishee and the judgment creditors’ solicitors in the course of which it is said for the garnishee that those solicitors took no steps to rectify the order or indeed to do anything about the matter.  In these circumstances, the garnishee took out its summons first on 27 July 2010 (and not the other way round as I had suggested in my ruling of 16 August) to set aside the order due to the existence of the two errors which I have drawn attention to, and the judgment creditors responded with their amendment summons on 10 August 2010.

8.  Given the delay on the part of the judgment creditors’ solicitors it is submitted that the garnishee acted correctly in issuing its summons which, if successful, would have resulted in the judgment creditors starting again.

9.  There is no doubt that the garnishee has been drawn into a far greater involvement than it would have had to participate in had this straightforward matter not been de-railed by these two errors, one on either side.

10.  The order for costs needs to reflect what has gone wrong.  It seems to me that the judgment creditors were tardy in their response to this matter which would have been rectified very much sooner than it was.  For its part, the garnishee was in error in its calculations.  It also adopted the wrong course in seeking to set aside the order.  I have decided that on this occasion both parties should bear their own costs up to and including the date of my ruling on 16 August.  It would not be right to oblige one party to pay any portion of the other party’s costs in circumstances such as these.

Costs of the 12^th October

11.  So far as the garnishee and the judgment creditors are concerned, this is very much part of the fall-out from what had happened previously.  I will therefore also say that as between these two parties there should be no order for costs.  As far as Mrs Gardner is concerned she has succeeded in getting a stay but is not asking for costs against anyone.  As between her and the judgment creditors, I will say no order for costs.  There is no issue between her and the garnishee and so an order for costs, even one of no order, is inappropriate.

Costs of This Written Argument

12.  There will also be no order for costs in respect of these written submissions on costs.

HCA 2158/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2158 OF 2009

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BETWEEN

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R U L I N G

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Introduction

1.  Chronology is important in this matter.  On 23 February 2010, I made absolute a garnishee order nisi in the sum of $1,000,000.  The garnishee (HSBC) had made a mistake.  The correct amount should have been for $200,000.  I amended the order absolute to reflect the correct amount on 16 August 2010.  I did this under the “slip rule”.  It had been submitted to me on behalf of the garnishee that the correct course to take was to set aside the order and require the judgment creditors to begin the process all over again.  I heard argument on this and I gave judgment saying why only an amendment was required.  I do not propose to rehearse the arguments here.  The judgment is in the papers and can be read if necessary.

2.  The amendment that I made relates back to the date of the original order on 23 February 2010 [see RHC Ord 20/8/2].

3.  In the judgment of 16 August, I direct that Mrs Gardner, who is another of the judgment debtor’s creditors should be given an opportunity to show cause why the garnishee should not pay out to the judgment creditors.  Her solicitors have written to say that she objects to a payment out.  She has extant bankruptcy proceedings against the judgment debtor and says that a payment out to the judgment creditors would amount to a preference over her and other judgment creditors.

Mrs Gardner’s Conduct in These Proceedings

4.  Mrs Gardner, like the judgment creditors in this matter, is the innocent victim of the judgment debtor’s dishonest conduct, as are almost certainly the other creditors that he has left out of pocket before he disappeared from Hong Kong.  That said, Mrs Gardner’s conduct has been inconsistent in relation to this matter.  This is what she has done so far.  On 10 February this year, when the judgment creditors were applying to have this garnishee order, and another relating to Standard Chartered Bank, made absolute I was informed by counsel for the judgment creditors that Mrs Gardner had obtained a Mareva injunction against the judgment debtor.  In view of this, I adjourned the application to 23 February and directed that Mrs Gardner’s solicitors should be written to and asked whether she wished to be heard.  They replied to say that Mrs Gardner had no objection to my making the garnishee order absolute.

5.  On 24 March, Mrs Gardner’s solicitors wrote to the judgment creditors’ solicitors and informed them, for the first time, of two things.  Firstly, that they had obtained a default judgment for US$9,796,879.63 against the judgment debtor on 14 January 2010, which was about six weeks before the making of the garnishee order absolute, and secondly, that they had issued a bankruptcy petition against him on 23 March 2010.

6.  Complaint is made on the judgment creditors’ behalf, and in my view with justification, that those representing Mrs Gardner had not revealed any of this to them nor to the court.  This was first made known only after I adjourned payment out of the amount held in the garnishee proceedings.  Her solicitors had remained silent throughout all of this period, including the fact that on 22 January 2010, they had issued a statutory demand to enforce the default judgment.  It is plain that as early as then they were contemplating issuing a bankruptcy petition.  It is a poor show on their part.

How Should I Proceed

7.  It is submitted on the judgment creditors’ behalf that I should pay no regard to what is said by Mrs Gardner’s solicitors who have wrongly accused the judgment creditors’ solicitors of misleading the court when they have done no such thing.  It is only now that, like the court, they have been made aware of the obtaining of a default judgment by Mrs Gardner and the steps subsequently taken to enforce that judgment. 

8.  As the now amended garnishee order, by relation back, pre-dates the issue of the bankruptcy petition, I should simply proceed to order a payment out to the judgment creditors.

9.  I consider that the judgment creditors have been hard done by on this occasion.  Firstly, by Mrs Gardner’s extraordinary silence throughout these proceedings and also by HSBC who were responsible for the mistake in the first place which resulted in the delay in payment out of the garnisheed amount.  Had HSBC not made the mistake, payment out would have been made well before the issue of the bankruptcy petition, and by section 45(1), Bankruptcy Ordinance (Cap. 6), the trustee-in-bankruptcy would have had no claim to this amount.  But as things have turned out, the judgment creditors can no longer take advantage of the section.  Section 45(2)(b) says that an attachment of a debt is completed by receipt of the debt which is what is required before the exception under section 45(1) can be taken advantage of.

10.  In such circumstances, I do not consider that I ought to order a payment out and I therefore propose to leave this amount and its disposal to the bankruptcy court.

11.  As to the costs of this argument and of the proceedings resulting in the judgment for 16 August, I will await the receipt of written submission as previously ordered.

Messrs Haldanes for the 1st and 2nd Plaintiffs

The Defendant did not appear and was not represented

Messrs Mayer Brown JSM for the Garnishee

Stephen Mok & Co. for Mrs Gardner

HCA 2158/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2158 OF 2009

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BETWEEN

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RULING ON COSTS

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1.  In this matter, the Plaintiff Judgment Creditors have failed to show that the 2nd Defendant Garnishee is indebted to the 1st Defendant Judgment Debtor. In such circumstances, I had dismissed the garnishee proceedings and made an order nisi that the judgment creditors should pay the garnishee all of its costs of the garnishee proceedings.

2.  The judgment creditors now seek a variation of that order so that each party bears its own costs.  I have taken submissions in writing in respect of this issue.

3.  In support of the provisional costs order in its favour the garnishee relies on the general principle that usually costs should follow the event.  This is explained at para. 62/3/3 of Hong Kong Civil Procedure 2010 which is to this effect:

“In the case of a wholly successful defendant the judge must award him costs unless there is evidence:

(1)That the defendant brought about the litigation; or

(2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense; or

(3) has done some wrongful act in the course of the transaction of which the plaintiff complains.”

4.  It is right that at the outset the picture that had emerged on the garnishee's accounts was that it owed the judgment debtor some $5.5 million which, no doubt, encouraged the judgment creditors to initiate this proceeding.  Once the matter had come to court on a contested basis there was clear evidence that these accounts were provisional and that once a more final account was available this would show that nothing was going to be owed to the judgment debtor by the garnishee.

5.  I allowed the garnishee time to prepare a final account.  In the interim it also obtained a default judgment against the judgment debtor based on his conduct towards it during his tenure as one of its partners.  Although when the matter was brought back to me on a final hearing the accounts produced by the garnishee were not “final”, I was satisfied with its explanation as to why this was so and more importantly satisfied that there was never going to be a situation where any debt would be owed to the judgment debtor by the garnishee.

6.  Not for the first time I record my sympathy for the judgment creditors, but no matter how these garnishee proceedings are viewed in their minutiae which, understandably, they have been on the judgment creditors' behalf in the written argument, I fail to see how the garnishee can be faulted in its conduct of this matter.

7.  There is force in the point that has been made on the garnishee's behalf that the judgment creditors' solicitors delayed before serving the garnishee with the order nisi so that it had very little time to respond to the application to show cause which prompted me to adjourn the application.  Following that the conduct of the garnishee and its solicitors has been entirely reasonable and at the final hearing when the arguments were put to the test, I was satisfied that no debt was ever going to be owing to the judgment debtor.  In such circumstances, the successful garnishee ought to have its costs as I ordered when making the costs order nisi. It must also have its costs of this application to vary that order.

HCA 2158/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2158 OF 2009

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J U D G M E N T

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Introduction

1.  There is an error on the face of the garnishee order absolute in this matter because it overstates what is owing by the garnishee, HSBC, to the judgment debtor, Mr Dias-Azedo.  The judgement creditors, Mr and Mrs Da Silva are applying for an order amending the order absolute in order to delete the incorrect amount and to replace it with the correct amount owed by the garnishee to the judgment debtor.

2.  The garnishee has a cross-summons.  It is submitted on its behalf that it is not appropriate to amend, the proper course is to set aside the order, leaving it to the judgment debtor and creditors to start again.

The Law

3.  Before going into how the error as to the amount has come about, it is helpful to consider the authorities relied on by the parties.  In Moore v Peachy [1892] 66 LT 198, a garnishee order absolute was set aside in a case where the garnishee bank had mistakenly entered the name and account of a customer whose name was very similar to that of the judgment debtor.  In Marshall v James [1905] 1 Ch 432, an order absolute was set side on the basis that at the time that the order was made, no debt was owing from the judgment debtor to the judgment creditor but to someone else.  In both of these cases the court in the exercise of its inherent jurisdiction considered it right to cure what would have been a manifest injustice by setting aside the order absolute. 

4.  Mr Dennis Kwok for the judgment creditor submits that these two authorities have no application to the facts of this case.  There is no injustice that has arisen in the matter before me which requires the drastic remedy of having the order set aside, as yet no monies have been paid out.  A debt is undoubtedly due from the judgment debtor to the judgment creditor.  The garnishee bank has a balance owing to the judgment debtor albeit substantially smaller than what is shown in the order as presently drawn.  This case can and should be rectified by amendment of the order under the slip rule.

5.  Mr Kwok has also referred to other authorities such as TheTile Centre v Symons ex parte Kyritis [1972] VR 965 and O’Brien v Killeen [1914] 2 IR 63 where orders absolute were set aside. These also related to cases where no debt was owing by the garnishee to the judgment debtor or by the judgment debtor to the judgment creditor.

6.  All four cases to which I have referred relate to what would have amounted to a manifest injustice had the order absolute remained in place.  Much of the judgments in these cases relate to whether the court has the power to set aside and the circumstances in which this power can be exercised.

Disposal

7.  For my part, I am satisfied that the facts of this case do not disclose the fundamental factual errors which required the court in the cases to which I have referred to set the orders aside.   In fact, in each of those cases had the judgment creditor started again, the garnishee applications would all have been doomed to failure, hence the need to have them set aside in the first place.

8.  In this matter all that I am concerned with is an error as to quantum only.  It is accepted by the garnishee that it owes the judgment debtor an amount and the identity of the parties is known and undisputed as to their respective entitlements.  Order 20 rule 11 of the Rules of the High Court has application where there is a clerical mistake, not the case here, or - and I quote:

“An error arising from an accidental slip or omission, for example, an arithmetical error in the calculation of damages.  The rubric to the rule goes on to say that the error or omission must be an error in expressing the manifest intention of the court (see 20/11/1 Hong Kong Civil Procedure 2010, page 444).”

9.  It strikes me that what has happened here falls squarely within the purport of the rule. Plainly, it was the intention of the court, as it was of the parties, both of whom had failed to notice the error on the face of the order, to make an order which reflected what it was that the garnishee owed, as a net amount, to the judgment debtor.  Now that the error has been realised, the judgment creditors are asking for the amendment to go so as to cure the mistake and for them to receive the correct amount from the garnishee. 

10.  Insofar as this is Mr Kwok’s submission, I agree with it and with his analysis of the facts and the situation as a whole. Accordingly, I will make the order asked for in the summons so as to correct the mistake.  It must also follow that the garnishee’s summons to set aside the order will stand dismissed. 

Should there be a stay

11.  I will now go on and consider whether this now corrected order should be stayed.  Miss Reynolds, for the garnishee, has pointed out that there are afoot contested bankruptcy proceedings in which another creditor of the judgment debtor, a Miss Gardner, is petitioning to have him made bankrupt.  The question arises as to whether payment out under the now amended order would amount to a preference of the judgment creditors over Miss Gardner and of any other supporting creditor.

12.  In my view, Miss Reynolds raises a serious issue which needs to be addressed.  Miss Gardner’s solicitors have today sent representatives to observe these proceedings.  What I propose to do is to direct that they should be served with today’s order and my judgment, and I will give 21 days from receipt of the order and of the judgment to apply to me to show cause why the garnishee should not pay out to the judgment creditors the amount in the order absolute as now amended.  If they are not minded to make any application or address any representations within the time allowed by me I will direct that there be payment out by the garnishee to the judgment creditors.

Costs

13.  And, finally, costs.  I will wait for the expiry of the 21 days to see how Miss Gardner is minded to address the question of a stay and then decide the issue of the costs of today.  The judgment creditors have succeeded on the main event, as it were, but the issue of a stay will undoubtedly also have a bearing on costs, so I will wait and see how that develops before ruling on the overall costs of today.  So that is the judgment. 

HCA 2158/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2158 OF 2009

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BETWEEN

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J U D G M E N T

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Introduction

1.  This is the resumed hearing of an application by Mr and Mrs da Silva (the judgement creditors) for an order to make absolute a garnishee order nisi.

2.  The garnishee is the firm of Grant Thornton of whom the judgment debtor Mr Dias-Azedo was senior partner.

3.  This matter first came before me on 23 February last and by a judgment handed down on 3 March I adjourned the application to 1 June to allow time for Grant Thornton to:

“prepare(d) its final version of the relevant partnership accounts or, at the very least, a credible and verifiable account as between the partnership and Mr Azedo …” [para.10 – judgment 3 March 2010].

4.  The history to all of this can be followed from my previous judgment and so I do not propose to repeat this here save to say that Grant Thornton’s then latest accounts showed that an amount of HK$5.5 million was owing from it to Mr Azedo. It is this balance which prompted Mr and Mrs da Silva to bring these garnishee proceedings.

What Has Happened Since 3 March

5.  So far as Grant Thornton is concerned this appears in the second affirmation of Mr Alan Tang who is one of its partners. The affirmation is dated 31 May 2010 and so it is very recent. In terms of the partnership accounts its fair to say that not very much has happened. This is what he says at paragraphs 7 to 10 of his affirmation:

“Partnership accounts
7.	Notwithstanding the time graciously granted by his Lordship.  Grant Thornton is not able to finalise its accounts for the 2007/08 year and consequently also the 2008/09 year.  This is because under the accounting approach that Grant Thornton presently adopts, where there are known contingencies that, depending upon their outcome, might have an effect on transactions recorded in the accounts, they cannot be closed.  The known contingencies are: 7.1 Disputes between Grant Thornton and a number of former partners (some of which are now subject to litigation); 7.2 Disputes between Grant Thornton and another member firm of Grant Thornton International in respect of, inter alia, the payment of salaries of persons seconded to Hong Kong and the PRC from overseas; 7.3 The outcome of further claims, that are yet to be determined and quantified, by Grant Thornton against the 1st Defendant in respect of his misconduct as managing partner of the firm; 7.4 Claims of Grant Thornton against the 1st Defendant for contribution and indemnity in the event that judgment is given against the firm in these proceedings and those brought by Ms Gardner.
8	Regrettably, Grant Thornton is not able to quantify these matters until they run their respective courses and therefore cannot finalise the accounts.  As and when each of these matters is resolved the relevant adjustment can be put into the accounts.  However, as matters stand the issues have not crystallised and therefore cannot be included in any reckoning of the amounts due to or from the 1st Defendant as at 6 January 2010 (which I understand is the relevant date).
9	Although the accounts cannot be finalised or closed, Gary James, Partner of Grant Thornton, has prepared the exhibited ‘Certificate of Balance’ which I believe accurately sets out the known financial position between the 1st Defendant and Grant Thornton as at 6 January 2010.
10	The Certificate of Balance shows that the amount owing from the 1st Defendant to Grant Thornton as at 6 January 2010 was HK$2,596,347.  As and when the above contingencies are resolved, the balance owing from the 1st Defendant is expected to increase further.  Needless to say, Grant Thornton is not indebted to the 1st Defendant.”

The certificate is in this form:

“Certificate of Balance Re: Gabriel Azedo (‘GRA’)
HK&
Balance as of 1 April 2007 to the credit of GRA	14,011,265
Add: Pro-forma share of net profit for 2007/8	5,104,236
Deduct: Drawings for 2007/8	(3,510,000)
Deduct: Transfer to other equity partners	(1,000,000)
Balance as of 1 April 2008 (date of retirement)	14,605,501
Add: Interest from 1 April 2008 to 2 October 2008 (Note)	370,139
Deduct: Payment made on 2 October 2008	(8,575,487)
	6,400,153
Add: Interest from 3 October 2008 to	380,800
6 January 2010 (Note)
Balance as of 6 January 2010	6,780,953
Deduct: Judgment debt payable to Grant	(9,377,300)
Thornton by GRA
Balance as of 6 January 2010 owning by	(2,596,347)
owing by GRA to GTHK
Note:  Interest accrues on a reducing balance basis at 5% p.a. simple.
Caveat:  These figures do not include further potential claims that Grant Thornton may have against GRA in respect of his conduct as managing partner of the firm.
31 May 2010	For Grant Thornton”

It is signed by Mr James the responsible partner.  Based on this Mr Harrison, on Grant Thornton’s behalf, submits that Mr and Mrs da Silva have failed to show that there is a debt owing to Mr Azedo — in fact the contrary is true to the extent of nearly $2.6 million.  This being so these garnishee proceedings are simply incompetent and should stand dismissed.

6.  In relation to this account, I should draw attention to the fact that since the hearing in February, Grant Thornton had issued a writ against Mr Azedo [HCA 433/2010] upon which judgment in default of appearance was obtained on 30 April 2010 which is reflected in the account on the basis that it is a matter which falls to be set-off against any amount that it owes to him.

7.  In relation to the partnership accounts, Mr Tang has explained why these have not and cannot be finalised simply because there remain, and this likely to be the position for sometime yet, uncrystallised and contingent matters as between the partners, nevertheless, this does not change the position as between Grant Thornton and Mr Azedo as at 6 January 2010 which shows that it owed him $6,780,953. From this figure, the judgment has been deducted leaving him owing it, in round figures, $2.6 million.

8.  Another feature which is to be taken into account is a bankruptcy petition against Mr Azedo issued by Mrs Angela Gardner, she having obtained judgment against Mr Azedo for USD (and not HKD as mentioned in my judgment of 3 March 2010) $9,756,879.63. If a bankruptcy order is made then all actions, including this one, will be stayed. In such circumstances, Mr Harrison submits that if I am not minded to dismiss the garnishee proceedings, I should not make the present order nisi absolute but adjourn the application generally to await the outcome of the bankruptcy petition which at present stands adjourned awaiting a date for its hearing which is to be contested by, for the moment at least, Mr and Mrs da Silva. To make the order absolute would have the effect of preferring one creditor of Mr Azedo over the other creditor which would not be the right thing to do.

The Application to Make the Present Order Absolute

9.  Mr Fung SC, in a series of trenchant submissions, says that notwithstanding the fact that the court had on 3 March extended Grant Thornton an indulgence to get its accounts up, an order made in the expectation that this would be the case, it has done nothing. The position is as it was and all that has happened is that it has obtained a judgment in default against Mr Azedo which has the effect of producing a negative balance on his account.

10.  Mr Fung submits that this is simply not good enough and where Grant Thornton has failed to do what had been expected of it, in circumstances that these accounts are now long overdue, I should ignore what has been prepared and signed by Mr James, who has not even gone on affidavit to verify the account, leaving it to Mr Tang to give a second-hand account. He submits that I should find that there is a debt owing as it was before Master Yu when he made the order nisi and therefore make the order absolute which will, at least, provide some relief to Mr and Mrs da Silva who are perfectly innocent in all of these matters and who have obtained a perfectly good judgment against Mr Azedo which remains outstanding.

11.  I agree entirely with Mr Fung’s description of Mr and Mrs da Silva’s position which is made worse by the fact that they have been let down by someone who had been a life-long friend. They are of course completely above board and much sympathy is due to them. Nevertheless, such plaudits, absent the return of what is owed to them, must ring very hollow.

12.  In relation to the inability of Grant Thornton to produce finalised accounts, although regrettable in these circumstances, I accept Mr Tang’s explanation about why this is so, as I do his explanation that the position between it and Mr Azedo is now likely to remain as is shown in the account that Mr James has signed-off on. Whatever the uncrystallised and contingent items which prevent the practice from producing a final account at present, the fact remains that one will never get to a position where Grant Thornton will owe Mr Azedo anything on the partnership accounts between the practice and its partners. If anything, the likelihood is that he will owe it more if only due to the incidence of interest running on the judgment debt.

13.  This being the position about which I am satisfied, Mr and Mrs de Silva are simply in no position to show that there is a debt owing by the garnishee to the judgment debtor into whose shoes they can step into and obtain payment. I find as a fact that this situation will not change and that the final accounts, whenever they may be prepared, will not alter this fact. Accordingly, I propose to dismiss these proceedings where no further purpose can be served in further adjourning them.

The Bankruptcy Petition

14.  Where I have dismissed the garnishee proceedings, the existence of this petition is of no consequence. Nevertheless, I ought to say that had I been obliged to take the petition into account in circumstances where I was not persuaded to dismiss the garnishee proceedings, I would have adjourned these proceedings to await the outcome of the bankruptcy petition. Mr Fung submits that Mrs Gardner is showing no appetite to proceed with it but the fact is that it is due to be fixed for a contested hearing regard being had to the availability of counsel. I would have waited to see the outcome of that petition which at this stage I could not ignore given that to make the garnishee order absolute would have preferred Mr and Mrs da Silva over the other creditor or creditors, if Mrs Gardner is not the only other creditor. Mr Azedo’s indebtedness is much greater to her than it is to Mr and Mrs de Silva.

Costs

15.  Whilst I have much sympathy for Mr and Mrs da Silva, the fact is that costs will have to follow the event on this application which will include the costs previously reserved. This will be an order nisi.

HCA 2158/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2158 OF 2009

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BETWEEN

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J U D G M E N T

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Introduction

1.  This is an application by the Plaintiffs, Mr and Mrs da Silva to have made absolute a Garnishee Order nisi in respect of a debt said to be owing to the Defendant, Mr Azedo by the Garnishee Grant Thornton which is an international accountancy practice of whom the Defendant had been senior partner in Hong Kong. This is resisted by Grant Thornton on the basis that there is no amount owing by it to Mr Azedo.

2.  How all of this has come about can be explained very briefly. Mr and Mrs de Silva and Mr Azedo, who are prominent members of Hong Kong’s Portuguese community, had been life-long friends. In 1995, Mr and Mrs de Silva established a trust fund amounting to US$2.339 million which they entrusted to the management of Mr Azedo who was then the managing partner of Grant Thornton. In September 2009, Mr Azedo disappeared, has not been seen since and is thought to have left Hong Kong. On 27 November 2009, Mr and Mrs de Silva obtained judgment in default of appearance against him in the sum of US$2,339,922.07. The application before me follows on from an Order nisi made by Master Yu in respect of a sum of HK$5.5 million which is the amount credited to Mr Azedo’s partnership account with Grant Thornton. It is this Order, in respect of this amount, which I am asked to make absolute.

3.  For the sake of completeness, I should relate that Mr Azedo has also been sued by a Mrs Angela Gardner who had entrusted over HK$9 million with him. In her case there is a Mareva injunction freezing other funds owing to Mr Azedo but as yet no final judgment has been entered in that action. When this application was first before me, I adjourned it and directed that Mrs Gardner be informed of the application by Mr and Mrs de Silva so as to give her an opportunity to appear and make any representations that she might wish to in her capacity as a creditor of Mr Azedo’s. Her solicitors have written to the court to say that they do not wish to appear nor say anything on this application.

The Issue

4.  Mr Fung, SC who appears for Mr and Mrs de Silva, has addressed me on a range of issues but it seems to me that really there is only one matter which ought to claim my attention in deciding whether, on this occasion, I should make the Order nisi an absolute one. As Mr Stock on behalf of Grant Thornton has submitted, Mr and Mrs de Silva can do no better than Mr Azedo in relation to any debt owing by Grant Thornton to him. It is in the nature of garnishee proceedings that the judgment creditor stands in the shoes of the judgment debtor in claiming any debt owing by the garnishee to the judgment debtor. The court in making a garnishee order directing payment by the garnishee to the judgment creditor will by the making of that order provide a valid receipt to the garnishee and thereby extinguish any debt (to the extent of the garnishee order) owing by the garnishee to the judgment debtor. In so ordering, the garnishee is protected from any subsequent suit by the judgment debtor against it for the amount and to the extent of the court’s order. So much is trite and not in dispute.

5.  In this situation, Grant Thornton (as garnishee) is submitting that it owes the judgment debtor (Mr Azedo) nothing, so that if I make the order asked for by Mr and Mrs de Silva, Grant Thornton gratuitously would be paying them a debt owed to them by Mr Azedo. This as well is trite. The question here is whether Mr Fung can today prove that a debt is in fact owed by Grant Thornton to Mr Azedo. Perfectly understandably, he is entitled to point to the accounts which show that Grant Thornton owe Mr Azedo $5.5 million. Nevertheless, that is not the end of the matter because as Grant Thornton’s evidence shows this account is not the final word on the matter. It is only a provisional account and that given some time, Grant Thornton is well able to demonstrate that the final outcome will be that it is Mr Azedo who owes it money, in which case these garnishee proceedings are incompetent and must fall to be dismissed.

6.  Mr Fung has stressed the position of Mr and Mrs de Silva as innocent victims of Mr Azedo who have acted with dispatch in obtaining judgment against him which they are now trying to enforce by all reasonable and lawful means at their disposal. Of this, I have no doubt. He then seeks to contrast the position of Grant Thornton who he says has dragged its feet in relation to finalising its accounts which, on their face, shows a debt owing to Azedo for $5.5 million.

7.  Mr Stock submits that in circumstances where Mr Fung bears the burden of proving that there is such a debt owing, he must fail given the state of the evidence that these accounts are yet to be finalised and having regard to Grant Thornton’s other claims against Mr Azedo. Faced with this situation, Mr Stock submits that I should therefore summarily dismiss these garnishee proceedings, failing which I should, at the very least, adjourn to allow the accounts to be finalised and to await the outcome of Grant Thornton’s pending action against Mr Azedo, now being actively prepared on its behalf, to be tried.

Conclusion

8.  Both counsel have referred me to authorities which to varying degrees bear on this type of case. For my part, I see this very much as a case of the management of the application by the court against the background of the substantive issues raised by the application and the current state of Grant Thornton’s evidence. So far as Mr and Mrs de Silva are concerned, they have done all that they can by obtaining a final judgment against Mr Azedo.

9.  My sense of this is that it would be quite wrong to ignore the fact that the accounts relied on by Mr Fung are provisional. Mr Fung has complained that Grant Thornton has been dilatory in the sense that these are 2008 accounts and so there may be something in that, but it is also right to say that this has only “blown up” since September 2009 when Mr Azedo disappeared leaving behind innocent creditors such as Mr and Mrs de Silva and Mrs Gardner.

10.  What I have decided to do is to allow Grant Thornton more time to prepare its final accounts. I don’t think that it would be right, in the first instance, to say that the de Silvas should have to wait for the outcome of any action by Grant Thornton against Mr Azedo. What I propose to say is that I will adjourn this application until 1 June 2010 at 9:30 a.m. before me when I would expect that Grant Thornton will have prepared its final version of the relevant partnership accounts or, at the very least, a credible and verifiable account as between the partnership and Mr Azedo, and so that is the order that I will make. The costs of this application will be reserved to that date.