Garnishees – a common garnish to fraud
Insights from a Legal Intern at Ravenscroft & Schmierer
I had the privilege of spending my 1L summer (1L refers to the first year of law school in North America) at Ravenscroft & Schmierer, a full-service boutique law firm based in Hong Kong. During my time there, I had the opportunity to assist the firm’s lawyers in conducting legal research for a case regarding garnishee proceedings, a completely foreign concept to me. Here is what I learned from this experience.
Author: Kristen Tang, Summer Legal Intern
Recovering your money after falling victim to a scam
Imagine finding yourself the unfortunate victim of a scam. You realise that you’ve just unwittingly transferred your entire life savings to a fraudster. Desperate to recover your money, you engage the services of a lawyer and file a lawsuit against the fraudster. Fortunately, you emerge victorious from the case, and the judge orders the fraudster to pay you back. However, that’s not the end of it – there’s still a complex and protracted battle up ahead – and you better be ready to fight it.
Just because the judge ordered the fraudster to return your money, that doesn’t guarantee he’ll do it. Also, fraudsters are smart (at least smart enough to scam you out of your money). More often than not, the money that they scammed from you is no longer located in the same place as where you sued the fraudster, which greatly complicates things in the legal world. After all, this means that your money is not subject to the jurisdiction where you won your case. Chances are, the money is now held in a bank account situated in an international financial hub – a city like Hong Kong – where vast amounts of money flow in and out daily. This begs the question – how are you going to get your money back?
Garnishees – 3rd party holders of money owed to you
At this point, the easiest approach to reclaiming your money is to compel the bank – a third party – into releasing the money directly to you. Naturally, you cannot simply ask the bank and expect them to return the money out of goodwill. Instead, you must make your case before the local courts and obtain a court order compelling the bank to transfer the money to you. This is where the concept of garnishees becomes relevant. Contrary to its culinary connotation (which is what I thought when I first heard of the term), a garnishee has nothing to do with adding embellishments to your food.
A garnishee proceeding is a mechanism to enforce a court judgement against a fraudster by enabling you to recover your debts directly from a third party holding your money. The term garnishee thus refers to the third party – the bank – who is holding your money. A garnishee proceeding consists of two stages. Firstly, once the court has been satisfied that the fraudster owns the bank account, a “garnishee order nisi" (pronounced nEYE-sEYE) will be issued. This is a temporary order that does not allow you to recover your money immediately. However, upon serving this order to the bank, the account is frozen, and no further funds may be transferred out. The second stage is where the formal order, referred to as the “garnishee order absolute”, will be issued. The garnishee order absolute then empowers you to reclaim your funds from the bank.
Reality is (almost) always more complex
As is often the case, real life scenarios are not so simple and straightforward. In the instance of one of our clients, although our lawyers had successfully obtained a garnishee order nisi, we encountered a peculiar problem – we had a competitor. Specifically, there was a competing claimant who had fallen victim to the same exact scam, on the same exact day as our client, who had also obtained a garnishee order nisi for the same exact bank account. The predicament we were in was that although we did not know exactly how much money was in the account, the bank had strongly indicated that there was a lack of sufficient funds in the account to cover the losses of both claimants.
Our lawyers proposed a solution – a 50/50 division of the funds in the account. This was in fact, a proposition offering a considerable advantage to the other claimant, given that their losses were much less than our client’s and amounted to only one-third of what our client had been defrauded. Despite this, they rejected our proposal. Our lawyers anticipated they were likely relying on one tiny difference to try and argue that they should have priority in recovering their entire sum before our client did, which would effectively leave our client with close to nothing. This miniscule distinction lay in the fact that they had served the order to the bank four days before our client served his order.
Legal research – like hunting for treasure – a thrilling yet often fruitless journey
Thus began my legal research journey. My mission was twofold: firstly, to find case law supporting the argument that priority in claiming funds does not hinge on the timing of service to the garnishee; and secondly, to demonstrate that, in a scenario similar to ours, the court would divide the funds proportionally to the losses incurred (a scenario unfavourable to the claimant who had suffered lesser losses than our client). The hope was that by presenting the case law to the other claimant, we could dissuade them from pursuing costly litigation on this specific point.
In the way that legal research often goes, I encountered numerous dead ends and a plethora of irrelevant information. I distinctly recall expressing my frustration to a colleague that my progress seemed completely stagnant between the first and third hours of research. As I familiarised myself with the case law, I found that previous claimants had mostly attempted to argue for priority based on the fact that they had received an order nisi prior to competing claimants. Considering that argument failed, it seemed to me a logical conclusion that the timing of service would be irrelevant to priority of competing claims.
After hours of persistent research, I concluded that the most applicable case was still the case that I had found, ironically, within minutes of beginning my legal research. In similar fashion to our case, that case featured multiple competing claimants who had been defrauded in near identical ways where some claimants had received a garnishee order nisi and some had not. The claimants who did not yet have a garnishee order nisi were disputing the proceeding to make the existing garnishee order nisi absolute, which would allow other claimants to first retrieve their money. In its ruling, the judge emphasized multiple times that already having a garnishee order nisi has no bearing on the quality of the claims by competing claimants. Thus, merely obtaining a garnishee order nisi first did not give a claimant priority in retrieving their money. Fortunately for the claimants in that case – and in contrast to our scenario, the garnishee account had more than enough money to cover everyone’s losses.
Ultimately, even my most helpful case could not answer the question as to how the court would exercise discretion in dividing up funds insufficient to cover the losses of multiple claimants. Thus, even the best case is often not ideal in proving the point you want to make. But, as with garnishing a dish, you often make do with what you can.
A wide range of practice areas, crossing many jurisdictions
Ravenscroft & Schmierer is a unique environment to work at. Because it is a mid-sized firm, and not as huge in comparison to the many behemoths called international firms in Hong Kong that have thousands of lawyers across the world. In contrast, Ravenscroft & Schmierer has two partners, three consultants, two associates, two trainees, several paralegals as well as accounting, marketing, secretarial and other support staff. Yet, this tight knit firm boasts an impressive range of practice areas that often cross multiple jurisdictions. From transactional corporate law to deeply personal family law, working at the firm allowed me to experience it all. As someone who likes to explore as much as possible, this was an ideal and worthwhile working experience.
Watch my internship experience video here, filmed together with my fellow interns Kyla Fernandez and Mark Kim:
Kristen Tang is currently a second year JD (Juris Doctor) student at the University of Toronto. She previously completed her undergraduate degree in Philosophy at UCL (University College London). After her studies in the UK, she moved to Canada to pursue her legal studies. She completed her internship at Ravenscroft & Schmierer in the summer of 2023.
Summer Legal Intern 2023