An update earlier this year(1) referred to some problems associated with attempting to enforce a judgment against the credit balance of a judgment debtor's bank account. The recent case Chan Lap Kit v Yushun Technology Ltd illustrates further difficulties that a judgment creditor may encounter in attempting to enforce a judgment by means of a garnishee order.(2) In this case the intervener successfully opposed the judgment creditor's application for a final garnishee order on the basis of the intervener's proprietary claim to money in the debtor's integrated bank account. The fact that the credit balance in the debtor's bank account was divided between sub-accounts (and different currencies) did not defeat the intervener's proprietary claim.
The intervener was the victim of a cyber fraud. The proceeds of the fraud, denominated in US dollars, were apparently transferred through an intermediate account to the defendant's account held with a bank in Hong Kong (the garnishee). The intervener obtained a judgment against the defendant for approximately US$880,000, including a declaration that to the extent that the moneys received by the defendant were traceable it held them on constructive trust for the intervener.
The plaintiff also obtained a judgment against the defendant and sought to enforce it against the credit balance of the same bank account by means of garnishee proceedings. The defendant's account with the bank was a single integrated account but divided into Hong Kong dollar and US dollar sub-accounts. The US dollar sub-account had only a nominal credit balance at the time of the plaintiff's enforcement proceedings while the Hong Kong dollar sub-account had a much larger credit balance.
Hence, the plaintiff and the intervener made rival claims to the Hong Kong dollar balance in the defendant's account. One the one hand, the plaintiff applied to attach the credit balances in the account; on the other hand, the intervener sought to resist the plaintiff's enforcement proceedings with its own proprietary claim to the balance in the account.
There were two principal issues before the lower court:
- whether the intervener had any proprietary claim to the US$880,000 paid into the defendant's bank account; and
- if so, whether the intervener could trace its claim to the credit balance of the bank account.
The judge found for the intervener on both points and therefore considered that there were good grounds to refuse to make the garnishee order final.
The plaintiff obtained permission to appeal with respect to what became the main issue in dispute – namely, given the defendant's bank account was a multi-currency integrated account, whether it was legally permissible to treat the funds in the US dollar sub-account and the Hong Kong dollar sub-account as one fund for the purpose of considering the intervener's proprietary claim.
Insofar as the plaintiff was concerned, the funds in the US dollar and Hong Kong dollar sub-accounts were segregated, so the intervener's claim to the balance in the defendant's bank account should be confined to the nominal US dollar balance.
On appeal, the Court of Appeal approached the matter as one of mixed fact and law.
First, the Court of Appeal saw no basis to interfere with the judge's findings of fact. The relationship between the defendant and its bank was defined by a single contractual relationship. Any payment in and out of the account (whether in Hong Kong dollars or US dollars) would be transacted via the single bank account number and credit balances in the US dollar sub-account could be freely converted to Hong Kong dollars and vice versa. The fact that the net balance of the account (being the aggregate of the Hong Kong dollar and US dollar balances held in the sub-accounts) was shown in each monthly bank statement in Hong Kong dollars, rather than in two separate currencies, supported the judge's findings.
Second, the Court of Appeal was careful to stress that whether there was segregation of money in an account was a matter of fact that depended on how the legal relationship between the account holder and the bank should be construed.(3)
Therefore, the plaintiff's appeal was dismissed. As a result, the intervener's challenge to the plaintiff's application for a final garnishee order was successful.
Integrated bank accounts are very common in financial hubs such as Hong Kong. In addition to sub-accounts categorised by different currencies, an integrated account may also have sub-accounts with other features (eg, credit cards, investments and insurance). This case sheds light on the approach of the courts to such accounts in the context of enforcement proceedings and rival claims by different judgment creditors.
Ultimately, in this case, the money in the sub-accounts of the defendant's bank account represented a unified debt, owed by the bank to the defendant, over which the intervener appears to have established a better claim than the plaintiff.
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For further information on this topic please contact Tina Wong or Gary Yin at RPC by telephone (+852 2216 7000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
(1) For further details please see "No enforcement of judgment against joint account".