WANFU FINANCE COMPANY LTD v. TSE TONG LAM ANTONIO AND ANOTHER

DCCJ 3571/2022

[2024] HKDC 1080

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3571 OF 2022

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REASONS FOR DECISION

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Introduction

1.  By Summons dated 3 June 2024 (“the Summons”), the 2^nd Defendant (“D2”) applied for an order that:

(1)  the Plaintiff (“P”) do discharge and release the security constituted by the Second Mortgage entered into between P and the 1^st Defendant (“D1”) dated 8 March 2022 over: (a) Apartment C1 on 14^th Floor of Block C, Greenville Gardens, No 16 Shiu Fai Terrace, Hong Kong; and (b) Car Parking Space No C47 on 3^rd Parking Floor of Blocks C and D Greenville Gardens, No 16 & 17 Shiu Fai Terrace, Hong Kong (together, “the Property”) with memorial number 22030801880019 (“the 2^nd Mortgage”) (“paragraph 1 of the Summons”); and

(2)  the registration of the Third Mortgage entered into between P and D1 dated 6 May 2022 over the Property with memorial number 22051102170026 on the Land Registry (“the 3^rd Mortgage”) be vacated (“paragraph 2 of the Summons”).

2.  The following affirmations were filed:

(1)  1^st Affirmation of Lam Ting Hon (“Lam 1^st”) on 3 June 2024 in support of the Summons;

(2)  1^st Affirmation of Su Quanguo (“Su 1^st”) on 14 June 2024 in opposition to the Summons; and

(3)  2^nd Affirmation of Lam Ting Hon (“Lam 2^nd”) on 19 June 2024 in reply to Su 1^st.

3.  As noted in paragraph 6(2) of Lam 2^nd, notwithstanding that in paragraph 2 of Skeleton Submissions of P lodged on 6 June 2024 (for the first hearing of the Summons before His Honour Judge Andrew Li on 7 June 2024) and in paragraph 5 of Su 1^st, it was confirmed that there is no objection on P’s part against discharging and releasing the 2^nd Mortgage, this has still not been done.

4.  In paragraph 2 of P’s Skeleton Submissions dated 21 June 2024 lodged for the hearing before me (“P’s Skeleton”), Mr Cheung, counsel for P, also submitted therein that P would agree to paragraph 1 of the Summons, leaving only paragraph 2 of the Summons and costs in contention between the parties.

5.  At the beginning of the hearing before me, I confirmed with Mr Cheung that P agrees to an order being made by this Court in terms of paragraph 1 of the Summons.

6.  After having heard both counsel’s submissions, at the end of the hearing, I made the following orders:

(1)  P do within 7 calendar days from the date hereof discharge and release the security constituted by the 2^nd Mortgage entered into between P and D1 dated 8 March 2022 over the Property; and

(2)  D2 do pay to P 75% of the costs of and occasioned by the Summons, to be summarily assessed on paper, with certificate for counsel.

7.  I refused to grant the order sought by D2 in paragraph 2 of the Summons.

8.  These are my reasons.

Background Facts and the Parties’ Respective Case

9.  On 8 March 2022, P and D1 (being the then registered owner of the Property) entered into an agreement whereby P agreed to advance to D1 a mortgage loan facility in the sum of HK$9,000,000.00 (“the 1^st Loan Agreement”). Pursuant to the 1^st Loan Agreement, on the same day, P and D1 executed the 2^nd Mortgage whereby the Property was charged to the extent of providing security for the sum of HK$9,000,000.00 which was advanced to D1. The 2^nd Mortgage was registered in the Land Registry on the same day.

10.  According to P, in late March 2022, D1 engaged in further negotiations for an additional loan with P to alleviate his financial difficulties.

11.  On 30 March 2022, P and D1 agreed that P would advance an additional loan of HK$2,000,000.00 and the Property will be pledged as security under a third mortgage. However, as D1 represented to P of his urgency to obtain the additional loan and that D1 would make arrangement to grant a third mortgage to P as soon as practicable, P agreed to advance HK$2,000,000.00 to D1 and the third mortgage would be executed later.

12.  On 1 April 2022, P and D1 entered into a second loan agreement whereby P agreed to and did advance to D1 HK$2,000,000.00 (“the 2^nd Loan Agreement”).

13.  On 6 May 2022, the 3^rd Mortgage was executed by P and D1. The 3^rd Mortgage was registered with the Land Registry on 11 May 2022.

14.  However, unbeknownst to P, earlier on 12 April 2022, D1 and D2 entered into a sale and purchase agreement for the Property for the consideration of HK$25,700,000.00 (“the SPA”).

15.  The SPA was registered with the Land Registry on 10 May 2022.

16.  By an assignment dated 22 April 2022 (“the Assignment”), D2 became the legal and beneficial owner of the Property. The Assignment was registered in the Land Registry on 17 May 2022.

17.  On 27 May 2022, by way of a letter from D1’s then solicitors, it was stated that it has come to their attention that the 3^rd Mortgage was dated and registered after the sale of the Property and it was doubtful whether the 3^rd Mortgage was valid and had priority over the sale of the Property. Therefore, D1 was only willing to repay the sum of HK$9,278,000.00 for the purpose of discharging the 2^nd Mortgage.

18.  On 30 May 2022, D1 repaid HK$9,278,000.00 to P to discharge the outstanding principal and interest of the 1^st Loan Agreement.

19.  On 14 September 2022, P commenced the present action against:

(1)  D1, claiming the principal amount and interest due under the 2^nd Loan Agreement; and

(2)  D2, seeking declarations that: (a) the 3^rd Mortgage is valid and subsisting and be charged against the Property with priority over the Assignment and/or the SPA; and (b) D2 shall take the Property subject to P’s beneficial and/or equitable interests of the 3^rd Mortgage.

20.  On 15 November 2022, D2 filed his Defence and Counterclaim.

21.  At the hearing before me, Ms Ling, counsel for D2, submitted that essentially D2’s case was as follows:

(1)  Given both the legal and beneficial interest of the Property had been assigned to D2 by the time of the execution of the 3^rd Mortgage, D1 could not have validly conveyed any interest to P under the 3^rd Mortgage. Hence not being an instrument which may create some interest legal or equitable in the parcel of ground under s 2(1) of the Land Registration Ordinance, Cap 128 (“LRO”), the 3^rd Mortgage is not registrable and should be vacated. Ms Ling referred me to and relied on to the case of Mok Mei Ling Rekei v Lau Muk Fat [2019] 4 HKLRD 206 at §§32-33 and 35 (“D2’s Primary Case”);

(2)  In any event, as both the SPA and the Assignment were duly registered within 1 month of their execution, under s 5 of LRO, they have priority over the 3^rd Mortgage according to their respective date of registration (“Priority Argument”); and

(3)  P’s allegation that D2 had knowledge of the 3^rd Mortgage when he entered into the SPA and the Assignment is denied. In any event, by virtue of s.4 of LRO, no notice of any prior unregistered instrument shall affect the priority of the SPA and Assignment (“No Notice Argument”).

22.  D2 has sought in his Counterclaim against P a declaration that D2 is the full legal and beneficial owner of the Property.

23.  From the pleadings and counsel’s submissions, it is clear that the validity of the 3^rd Mortgage and whether P has any beneficial or equitable interest in the Property are the main issues of contention at trial.

24.  D2 says that, with the view to avoid further loss due to the further drop of the market value of the Property in the current economic downturn, on 19 April 2024, he entered into a preliminary sale and purchase agreement with third party purchasers (“the Intended Purchaser”) to sell the Property for a consideration of HK$20,200,000.00. The completion date will be on 5 July 2024 (“the Completion Date”).

25.  On 10 May 2024, D2’s solicitors wrote to P’s solicitors to enquire about the outstanding balance due under the 2^nd Loan Agreement.

26.  On 20 May 2024, P’s solicitors replied that the principal amount due to P was HK$2,000,000.00 and the alleged outstanding accrued interest and penalty interest were HK$1,443,123.00 and HK$499,049.00 respectively. The total sum allegedly then owed by D1 to P was therefore HK$3,942,172.00.

27.  On 21 May 2024, D2’s solicitors wrote to P’s solicitors offering to pay HK$5M[1] into court on the Completion Date pending final resolution of these proceedings and give other undertakings in exchange for the release of the 3^rd Mortgage. However, as this offer was not accepted by P, the Summons was taken out.

Applicable principles

28.  There is no dispute that by paragraph 2 of the Summons, D2 is seeking an interlocutory mandatory injunction against P.

29.  As to the applicable principles, Ms Ling relied on the legal principles as set out by Deputy High Court Judge H. Au-Yeung (as he then was) in HKCOLO.NET Ltd v Hong Kong Telecommunications (HKT) Ltd [2023] HKCFI 136, at §§35-38:

“35. It is trite that the American Cyanamid principles are applicable in an application for interlocutory injunction. Pursuant to those principles, the Court has to consider:

(1) Whether there are serious issues to be tried;

(2) Whether damages would be an adequate remedy for either side and where the balance of convenience lies.

36. In an application where interlocutory mandatory injunction is sought, the court should also bear in mind what Ma J (as his Lordship then was) said in the case of Music Advance Limited & Another v The Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041:

‘11. The applicable principles for interlocutory injunctions are well-known and do not need repetition. Generally, one needs to look no further than American Cyanamid v. Ethicon Ltd [1975] AC 396 and the relevant text in Hong Kong Civil Procedure 2002 Volume 1 at paragraphs 29/1/8-29/1/50.

12. I would, however, only highlight one aspect. Where, as in the present case, the plaintiffs seek an interlocutory mandatory injunction (that is, an order requiring the defendant to do something, in contrast to a prohibitory injunction which restrains the defendant from doing something), the following matters should be borne in mind as being the court’s approach:

(1) In the case of interlocutory mandatory injunctions, it is often said or assumed that a court will not grant one unless it feels a high degree of assurance that at the trial of the action, it will be shown that the injunction was rightly granted: see Shepherd Homes Ltd v. Sandham [1971] Ch 340 at 351. This has been explained and sometimes understood as meaning that in the case of an interlocutory mandatory injunction, the applicant’s case on the merits has to be made out to a higher standard of proof than in the case of prohibitory injunction: see the Court of Appeal’s observations in TKI Limited v. New Happy Limited [1995] 1 HKC 551 at 554 B‑D.

(2) Broad statements such as the above must, however, be properly put in context.

(3) The basic approach to interlocutory injunctions, whether mandatory or prohibitory, is the same. Section 21L of the High Court Ordinance, Chapter 4 makes no distinction between these two types of injunctions and simply states that interlocutory injunctions may be granted if it appears to be just or convenient to do so.

(4) At the interlocutory injunction stage, the principal concern of the court is that it might make a wrong decision in the sense that after trial, the party to whom an interlocutory injunction has been granted may lose or the party who has been refused one, may win. The court will therefore take whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong. This ‘fundamental’ principle is the source of the guidelines that have evolved for the determination of interlocutory injunctions (included are, of course, the American Cyanamid guidelines) and therefore, in the application of any guidelines, sight must not be lost of this principle. See here: Films Rover International Ltd v Cannon Films Sales Ltd [1987] 1 WLR 670 at 680 D‑G, in a passage from the judgment of Hoffman J which was approved by the House of Lords in R v Secretary of State for Transport ex parte Factortame Limited (No 2) [1991] 1 AC 603 and recently reiterated in the English Court of Appeal decision of Zockoll Group Ltd v Mercury Communications Ltd [1998] FSR 354 (which Mr Au was kind enough to place before me).

(5) Two common guidelines are of course the consideration of the merits of the plaintiffs’ claim and the balance of convenience. Here, it is of course easy to see at once how they are linked to the fundamental principle: there must be a risk of injustice if the plaintiff cannot even establish a serious question to be tried or that one or the other party will be put to substantial inconvenience or prejudice if an interlocutory injunction were or were not granted.

(6) In the case of interlocutory mandatory injunctions, the risk of injustice (being wrong in the sense referred to above) can be quite acute. In Films Rover International Limited, it was put thus by Hoffman J at 681 B‑E:

‘In Shepherd Homes Ltd. v Sandham, Megarry J. spelled out some of the reasons why mandatory injunctions generally carry a higher risk of injustice if granted at the interlocutory stage: they usually go further than the preservation of the status quo by requiring a party to take some new positive step or undo what he has done in the past; an order requiring a party to take positive steps usually causes more waste of time and money if it turns out to have been wrongly granted than an order which merely causes delay by restraining him from doing something which it appears at the trial he was entitled to do; a mandatory order usually gives a party the whole of the relief which he claims in the writ and makes it unlikely that there will be a trial. One could add other reasons, such as that mandatory injunctions (whether interlocutory or final) are often difficult to formulate with sufficient precision to be enforceable. In addition to all these practical considerations, there is also what might be loosely called a ‘due process’ question. An order requiring someone to do something is usually perceived as a more intrusive exercise of the coercive power of the state than an order requiring him temporarily to refrain from action. The court is therefore more reluctant to make such an order against a party who has not had the protection of a full hearing at trial.’

(7) This passage in my view explains just why it is that generally a court will have to feel a high degree of assurance that at the trial of an action it will be shown that the interlocutory injunction was rightly granted before an interlocutory mandatory injunction will be given; all this being an exercise in assessing the strength of the plaintiffs’ case: see sub‑paragraph (1) above. However, I emphasize that this is only generally the court’s approach. Where it is shown, as an exception to this general approach, that the case is one in which the withholding of an interlocutory mandatory injunction would in fact carry a greater risk of injustice than granting it even though the court does not feel the ‘high degree of assurance’ as aforesaid, it would be right to grant an interlocutory mandatory injunction: see Films Rover International Limited at 681 A‑B.

(8) This of course brings into focus the balance of convenience. Thus, if a plaintiff in seeking an interlocutory mandatory injunction cannot demonstrate more than a serious question to be tried, it will have to show that the balance of convenience tilts so much in its favour that justice requires such an injunction to be granted, even taking into account those aspects of an interlocutory mandatory injunction expressed by Hoffman J in Films Rover International Limited.

(9) At no stage, however, in the consideration of the matter does the court lose sight of the practical realities of the situation to which the injunction will apply: see NWL Limited v. Woods [1979] 1 WLR 1294 at 1306C per Lord Diplock.’

37. Cheung JA had also given the following reminder in Lai Hoi Ping (suing on his own behalf and on the behalf of all other members of Hong Kong Taxi Association) & Another v Persons Occupying Portions of Nathan Road near to and between Argyle Street and Dundas Street to prevent or obstruct normal vehicular traffic from passing and repassing the occupied areas & Others (HCMP 2975/2014, unreported, 15 November 2014):

‘[…] it has to be borne in mind that the court’s jurisdiction to grant an injunction, whether interlocutory or final, is based on section 21L of the High Court Ordinance (Cap 4) which provides that where it appears to the court to be ‘just or convenient’ to grant an injunction, the court may do so. The cases have given various guidelines on when it is ‘just or convenient’ to grant an interlocutory injunction, which, if granted, is, by definition, granted before the final outcome at trial is known. It is to address this peculiar feature of an interlocutory injunction that considerations such as whether there is a serious question to be tried (so that the plaintiff’s claim is not a ‘frivolous or vexatious’ one), whether damages is an adequate remedy, and where the balance of convenience lies, come into the picture, so that the court may, putting it negatively, choose the course of ‘lesser evil’, or putting it positively, decide whether it is ‘just or convenient’ to grant an interlocutory injunction before the final outcome at trial is known. (at paragraph 9)’

38. Hence, it is clear that it is not an inflexible rule that whenever a mandatory injunction is sought, the plaintiff must satisfy the court that there is a high degree of assurance that he shall succeed at the trial. It all depends on the circumstances. At the end of the day, the ultimate question is whether the requirement in section 21L of the High Court Ordinance (Cap 4) is satisfied – whether the court considers it just or convenient to grant the injunction. The court will take whichever course that carries the lower risk of injustice if it turns out to be wrong.”

30.  Like s 21L of the High Court Ordinance, Cap 4, s 52B of the District Court Ordinance, Cap 336, makes no distinction between mandatory and prohibitory injunctions. It simply states that injunctions (whether interlocutory or final) may be granted if the court considers it just or convenient to do so.

31.  From the authorities above, it is clear to me that whether the injunction is prohibitory or mandatory, the ultimate question is what course carries the lower risk of injustice if it turns out to be wrong, or is the “lesser evil”.

32.  As Lord Hoffman observed in National Commercial Bank Jamaica v Olint Corp Ltd [2009] 1 WLR 1405 at 1409G-H, arguments over whether or not an injunction should be classified as prohibitory or mandatory and the consequences of such classification are barren, and what matters is the practical consequence of the injunction which is sought. See also Re Wako Giken (HK) Co Ltd [2010] 4 HKLRD 121 at §22.

33.  That said, as was pointed out in the passages cited above from Music Advance Limited & Another and Shepherd Homes Ltd, in the case of interlocutory mandatory injunctions, the risk of injustice can be quite acute for at least the following reasons:

(1)  They usually go further than the preservation of the status quo by requiring a party to take some new positive step or undo what he has done in the past;

(2)  An order requiring a party to take positive steps usually causes more waste of time and money if it turns out to have been wrongly granted than an order which merely causes delay by restraining him from doing something which it appears at the trial he was entitled to do;

(3)  A mandatory order usually gives a party the whole of the relief which he claims in the writ and makes it unlikely that there will be a trial;

(4)  A mandatory order is often difficult to formulate with sufficient precision to be enforceable; and

(5)  An order requiring someone to do something is usually perceived as a more intrusive exercise of the coercive power of the state than an order requiring him to temporarily refrain from action. The court is therefore more reluctant to make such an order against a party who has not had the protection of a full hearing at trial.

34.  I can therefore understand why generally the Court would wish to feel a high degree of assurance (or some higher standard of proof) that at trial it will be shown that the injunction was rightly granted.

35.  Whilst Mr Cheung submitted that he did not dispute the general principles on interlocutory injunction, he submitted that where the grant of the interim relief would effectively dispose of the claim for injunctive and other ancillary relief, a higher threshold applies. Relying on the decision of Recorder Anderson Chow SC (as Chow JA then was) in Sim Kon Fah v JBPB & Co [2011] 4 HKLRD 45 at §47, it was submitted that the applicant has to show at least that he is likely to succeed at trial.

36.  In the present case, given the relief sought by D2 against P in the Counterclaim is a declaration that D2 is the legal and beneficial owner of the Property, essentially, he submitted that in vacating registration of the 3^rd Mortgage, this Court would have decided that the 3^rd Mortgage was invalid and not registrable because it does not affect land. Or in Mr Cheung’s own words, D2 has in effect “brought the substantive relief he sought in the Defence and Counterclaim forward” for this court to determine.

37.  Mr Cheung further submitted that the Priority Argument and the No Notice Argument are irrelevant for present purposes. As I understand from his submissions, the question of priority and notice under LRO is not determinative of the validity of the 3^rd Mortgage. I believe this is correct.

38.  It is well-established that the system established under LRO is one of registration of deeds and not one of registration of title. Registration does not confer validity on a registrable instrument but merely confers priority if it is valid. See Financial and Investment Services for Asia Ltd v Baik Wha International Trading Co Ltd [1985] HKLR 103 at 112H-113B and 113H-I per Hunter J:

“… I can see no answer to the argument put by counsel to Mantell J (and adopted by Mr Wei) in the following terms: ‘the section only deals with the question of priority as between two or more validly registered interests. So you look to the question of validity first and priority second.’

As Mr Thomson points out, ‘the system is one of deeds registration not title’. The difference is fundamental. The purpose of the ordinance is to facilitate the tracing of title not to give title itself. But to treat the registration as more than prima facie evidence of ownership derived from the registered document is to treat such registration as creating title itself. This is a fortiori if the registration alone is held sufficient to create or preserve a title shown ab extra not to exist. Section 3(1) in my judgment may modify rights: it does not create them.

Validity and priority are different concepts. The second only arises between valid effective documents. But a rule expressed like s 3(1) simply as a rule of priority, creates no presumption of validity and can operate satisfactorily without it. I can see no reason to make registration a test of validity or for suggesting that the invalid should somehow be perfected by registration. The words of the section require no more than that prima facie validity should be accorded to a registered document. If a challenge to such validity is made then the underlying transaction has be investigated and the matter ruled upon. I can see no mandate in the section for shutting out such challenge in limine.

…

In my judgment s 3(1) does no more than provide for priority between valid documents of the defined classes which are registrable and registered. Such registration is only prima facie evidence of ownership. It does not exclude inquiry into the underlying transaction which is the subject matter of registration. The validity and effectiveness of such transactions depend upon the results of such inquiry independently of the fact of registration.”

39.  Mr Cheung further submitted that, at the very least, D2 has to satisfy the court that P has “no real chance of succeeding at trial”, relying on the formulation by Recorder Linda Chan SC (as Linda Chan J then was) in Shanghai Liyou Investment Management Ltd v Ningxia Zhongyincashmere International Group Co Ltd (unrep) HCMP 3423/2015, 20 May 2016, at §64(2).

40.  Ms Ling had no real quarrel with the principles in Sim Kon Fah and Shanghai Liyou Investment Management Ltd cited by Mr Cheung. She considered those as examples of cases when the court required a higher standard of proof. However, she submitted that there is no inflexible rule that whenever a mandatory injunction is sought, the applicant must satisfy the court to that higher standard of proof. I agree. Whilst there may be a general rule that in the case of a mandatory injunction a higher standard of proof is required, it is not an inflexible rule.

41.  Anyhow, I do not believe Mr Cheung disputed that there is no inflexible rule. Even he himself submitted that the two authorities were learned guidance on determining whether or not it was just to grant the injunction sought.

42.  Furthermore, because what is just and convenient must depend on all the circumstances of the case, and given the infinite scenarios that may exist, there must be exceptions. So long as it has been demonstrated that the balance of convenience tilts so much in favour that justice requires the injunction be granted, the plaintiff may only need to demonstrate a serious issue to be tried on the merits.

Analysis

43.  From my discussion of the authorities above, it seems clear to me that if I am satisfied that there is at least a serious issue to be tried on the merits, I ought to focus on where the balance of convenience lies.

44.  Indeed, it was never contended by Mr Cheung that there is not even a serious issue to be tried.

45.  Besides, a serious issue to be tried is not a very steep hurdle. It has been held that so long as there is a serious issue, it matters not whether the court thinks that the plaintiff’s chance of success at trial is 90% or 20%. All that has to be seen is whether he has prospects of success which, in substance and reality, exist. Odds against success do not defeat him, unless those are so long that the plaintiff can have no expectation of success, but only a hope. If his prospects are so small that they lack substance and reality, then he fails for he can point to no question to be tried which can be called “serious”, and no prospects of such success which can be called “real”. See Hong Kong Civil Procedure 2024, Vol 1, §29/1/10.

46.  Furthermore, where the opposing party seeks to show there is no serious issue to be tried, the threshold is high, as it would be necessary to demonstrate that the claims should be struck out: see ibid. No such attempt was been made by Mr Cheung to so argue.

47.  It was only submitted by Mr Cheung that it was “unclear” or “doubtful” whether the higher threshold for mandatory injunction has been crossed.

48.  Furthermore, Mr Cheung was at pains to stress that there are substantial factual disputes that it would not be fair for this court to summarily resolve without the benefit of cross-examination at trial. He therefore must accept that there are serious issues to be tried.

49.  In the Amended Statement of Claim, in P’s claim against D2, it has been averred that D2 is not a bona fide purchaser for value without notice of P’s interest and/or the existence of the 3^rd Mortgage.

50.  As explained by Mr Cheung, P intends to rely on the following legal grounds in opposition to vacating registration of the 3^rd Mortgage:

(1)  D2 is barred by the doctrine of estoppel by silence or standing by; and

(2)  further or in the alternative, D2 should not be allowed to take advantage of his own wrong.

51.  In Su 1^st at paragraph 14, it was stated therein that there are at least the following two broad issues for trial:

(1)  If D2 had knowledge of D1’s intention to enter into the 3^rd Mortgage with P, D2 would become involved in D1’s plan to defraud and/or injure P, and D2 cannot be allowed to take advantage of D2’s own wrong; and

(2)  Further or alternatively, D2 is barred by estoppel by standing by. In gist, when D2 knew that P (mistaken as to the truthfulness) acted in reliance on D1’s representations that the 3^rd Mortgage would be duly executed between P and D1 and D2 knew that P had been acting in reliance on D1’s representations due to the said mistake, D2 should have come forward at that time to assert his alleged legal right. As D2 did not do so, D2 is estopped from denying P’s legal right of the 3^rd Mortgage.

52.  As I see it, the legal grounds that P seeks to raise are premised on establishing that D2 had actual or constructive notice of the representations made by D1 to P and/or the 2^nd Loan Agreement having been granted on the basis that the 3^rd Mortgage would soon to be executed.

53.  When I asked Mr Cheung what was the factual or evidentiary basis for P’s case of the alleged actual or constructive notice of D2, it was accepted that they were only matters to be inferred from the suspicious circumstances as mentioned in Su 1^st surrounding the sale and purchase of the Property to D2. These called for further investigation and explanation. In particular, Mr Cheung relied upon the following matters:

(1)  The unusually short period of 10 days for the title check of the Property (the SPA was executed on 12 April 2022 and the Assignment executed on 22 April 2022) but it can be seen from the Land Search of the Property, the title chain of the Property was not a short and clear-cut one;

(2)  D2 purchased the Property from D1 for the same consideration that D1 had paid for the Property on 9 February 2017 which meant that D1 may have sold the Property at a loss if one takes into account the stamp duty paid; and

(3)  D2 entered into an all-monies mortgage with Tse’s Finance Limited (“TFL”) to finance his purchase of the Property. The largest shareholder of TFL is a company in which D1’s mother is and was one of the directors. Further, it is undisputed that D2 has known D1’s mother for a long time and D1 and D2 are not complete strangers.

54.  As I indicated at the hearing, there may well be innocent and plausible explanations for all the above matters said to give rise to the suspicious circumstances. It seems to me, from the material before me, P’s case on the state of D2’s knowledge was not on very strong foundations. This is leaving aside Ms Ling’s attack on how an estoppel by silence could be applied on the facts of this case. She submitted that the facts of Mo Ying v Brillex Development [2015] 2 HKLRD 985 and CS Credit Ltd v Marspan Ltd [2021] HKCFI 3707, which were relied upon by Mr Cheung, were clearly distinguishable.

55.  It was submitted by Ms Ling, in the present case, at the time of the entering into of the 2^nd Loan Agreement, there could not arise any duty to speak up as D2 had no interest to speak of. Whereas at the time of the 3^rd Mortgage was executed, the Property had already been assigned to D2 and speaking up would not have altered anything. Ms Ling therefore submitted that there was simply no answer to D2’s Primary Case.

56.  Given that it does not appear to be disputed that there is a serious issue to be tried (and I am certainly of such a view), and the ultimate question before me is whether it is just and convenient to grant the injunction sought, I shall refrain from expressing any further views on the merits of the parties’ respective case and the likely outcome at trial.

57.  Turning to the balance of convenience, Ms Ling submitted the injustice to D2 was two-fold.

58.  Firstly, she submitted that as the registered legal and beneficial owner of the Property, P should be free to deal with the Property as and when he wished. If the 3^rd Mortgage remained registered in the Land Registry, and if the sale of the Property to the intended purchase cannot be completed, on top of the D2’s liability to repay the deposit and compensate the Intended Purchaser with a sum equivalent to the amount of the deposit and compensate the estate agent for the commission payable, D2 would suffer a further drop in the market value of the Property, which cannot be estimated or quantified.

59.  I do not accept that the loss to D2 if the intended sale of the Property could not proceed is one that could not be quantified. It is a common occurrence in Hong Kong that when, for whatever reasons, the sale and purchase of a property is aborted, the vendor would seek damages for the loss suffered as a result, including any drop in market value of the subject property. I am of the view that any financial loss suffered by D2 by not granting the injunction could sufficiently be compensated by an award of damages.

60.  Secondly, Ms Ling submitted that there was the litigation risk faced by D2. Either D2 may not be able to answer any requisitions raised by the Intended Purchaser’s solicitors in relation to the 3^rd Mortgage or D2 may need to commence proceedings against the intended purchaser for their refusal to complete the sale.

61.  On this matter, I asked Ms Ling whether there was any evidence that the Intended Purchaser’s solicitors had raised requisitions on the registration of the 3^rd Mortgage in the Land Registry and/or there was any indication that if the 3^rd Mortgage was not vacated, the Intended Purchaser would not proceed to completion. Ms Ling confirmed that there was no such evidence and accepted that there was only a risk that the sale would not proceed because of the registration of the 3^rd Mortgage. As P has now agreed to release the 2^nd Mortgage, she submitted that the sale to the Intended Purchaser not proceeding because of other requisitions would be speculative.

62.  Mr Cheung has submitted that D2 could offer an undertaking to the Intended Purchaser to compensate for any loss and damage in the event the 3^rd Mortgage is not vacated after the trial of this action. This seems to me to be one way for the intended sale to go ahead if the only issue on the question of title was the 3^rd Mortgage.

63.  In any event, even if the sale of the Property to the Intended Purchaser does not proceed, or costs has to be incurred to have the question of title resolved, because of not granting now the relief sought, it seems to me that these are matters for which D2 could be adequately compensated by damages.

64.  Only where I am satisfied that damages would not be an adequate remedy and D2 would suffer irreparable harm would it be necessary for me to consider on the other hand, if the injunction was granted whether P would be adequately compensated by D2’s undertaking as to damages.

65.  I am not satisfied that D2 would suffer any irreparable damage by not granting the injunction sought which could not be compensated by an award of damages.

66.  However, for the sake of completeness, and if I were wrong on the adequacy of damages to D2, I should indicate that I have my doubts whether P would be adequately compensated by D2’s undertaking as to damages.

67.  The latest position of D2 at the hearing was that he undertook:

(1)  To make a payment of HK$6,069,800.00 into Court from the balance of the purchase price to be received from the Intended Purchaser upon completion of the sale and purchase of the Property pending the final resolution of these proceedings;

(2)  Not to further charge or mortgage, pledge, part with possession of or otherwise dispose of or enter into any other commitment in relation to the Property or any part thereof or enter into any agreement so to do; and

(3)  If the Court later finds that the injunction has caused loss to P or any other party, and decides that P or that other party should be compensated for that loss, D2 will comply with any order that the Court may make.

68.  Mr Cheung submitted that if I were to order the 3^rd Mortgage to be vacated, P would lose the priority of the 3^rd Mortgage which it currently enjoys over instruments registered subsequent in time to the 3^rd Mortgage (for example, the mortgage in favour of TFL registered on 8 June 2022).

69.  However, Ms Ling submitted that there could not possibly be any loss caused to P if at trial it was found the 3^rd Mortgage was wrongly vacated because the payment into Court simply replaces the security that P had for the 2^nd Loan Agreement.

70.  Yet, as Mr Cheung has demonstrated (and I accept) there are problems with the promise to make payment into Court:

(1)  It is conditional upon the successful completion of the sale of the Property to the Intended Purchaser which on the evidence before this Court there is much uncertainty over;

(2)  The amount of HK$6,069,800.00 would only be sufficient to cover P’s claim against D1 for principal, interest and penalty interest up to 1 November 2025. It would not be sufficient if the trial does not take place before 1 November 2025. It also does not cover P’s costs of these proceedings which P is entitled to recover under the 2^nd Loan Agreement and the 3^rd Mortgage; and

(3)  There is a risk of further litigation with D2 on what is covered by D2’s undertaking.

71.  Again, for the sake of completeness, I shall briefly mention the other matters that Mr Cheung also invited me to take into consideration in whether to grant the injunction sought.

72.  Firstly, Mr Cheung submitted that there has been a delay of 1.5 years in bringing this application. He submitted that when the Defence and Counterclaim was filed on 15 November 2022, and knowing that as a vendor of the Property he would need to show good title to any prospective purchaser, D2 ought to have made this application at that time. He relied upon the case of King Fung Vacuum Ltd v Toto Toys Ltd [2006] 2 HKLRD 785 where Rogers V-P at §20 held:

“There has traditionally been a strong requirement when interlocutory injunctions have been sought, that the plaintiff must show that is acted promptly and without delay. Promptly in the circumstances of interlocutory injunctions has been commonly understood to be a period of six weeks or so of unexplained delay and three months with an explanation given for the delay in making application for an injunction. Since the American Cyanamid decision the importance of irreparable damage in an application for interlocutory injunction is paramount. If there is no irreparable damage demonstrated then the need for an interlocutory injunction has not been shown. This is important because of the approach that the courts take to interlocutory injunctions. They are not the trial of the action and the court is concerned with whether irreparable damage will occur before a trial can take place. It stands to reason that if a party is prepared to allow matters to proceed and takes no action with respect of matters which have been extant for lengthy periods, it lies ill in their mouth to say that there is likely to be irreparable damage and that is the case here.”

73.  In King Fung Vacuum Ltd, the defendants had applied for an injunction a year or so after they were aware of the facts of which they complain.

74.  In Wong Chung Ming Development Fund Co Ltd v Profit Surplus Ltd [2009] 3 HKLRD 514, after referring to the observation of Rogers VP in King Vacuum Co Ltd, Le Pichon JA said that statement is a “rule of thumb that has been used as a guide for many years”.

75.  I accept that delay can be fatal to an application for interlocutory injunction. As explained by Anthony Chan J in Dorshare Ltd v Shun Pong Ltd (unrep) HCA 1823/2012, 4 January 2013, at §§13-16, there are 4 reasons why:

(1)  Delay reflects the lack of irreparable damage;

(2)  Delay is capable of causing prejudice to the party against whom the injunction is sought;

(3)  Delay can render it unreasonable or unjust to grant an interlocutory injunction; and

(4)  A bad case of unexplained inordinate delay can constitute an abuse of process.

76.  However, in the present case, I do not consider that there was delay or unexplained delay. I accept the explanation of Ms Ling that it was only when there was a potential purchaser who was willing to purchase the Property at a price acceptable to D2 that there was a need to make the application and D2 acted promptly since that time. Given that these proceedings have already been commenced and the issue of the validity of the 3^rd Mortgage will be resolved, unless there was a potential purchaser, it is understandable why this application was not made until then.

77.  In any event, apart from the complaint that any urgency for the immediate grant of relief under paragraph 2 of the Summons was self-induced because of the delay, it has not been submitted that there is no irreparable damage to D2 as reflected by the delay, that P has suffered prejudice by the delay, the delay renders it unjust or unreasonable to grant the relief or that this application was an abuse of process. Whilst Mr Cheung did criticize D2 for not seeking to decide the issue of validity of the 3^rd Mortgage by way of a preliminary issue or apply for speedy trial of this action, I do not believe he went so far as to say this application was an abuse of process.

78.  Secondly, Mr Cheung submitted that there is no utility to grant the injunction sought. He submitted that as these proceedings are ongoing, unless and until following the trial of this action, the Court grants the declaration sought (which would have determined the question of validity of the 3^rd Mortgage and whether D2 takes the Property subject to P’s beneficial and/or equitable interest), the Intended Purchaser or any future intended purchaser may still take the view that D2 has not proved or shown good title to the Property even if the 3^rd Mortgage is vacated.

79.  I tend to agree with Mr Cheung. Based on the discussion of the case of Financial and Investment Services for Asia Ltd above, registration of the 3^rd Mortgage is not in itself a test of validity nor does it not confer validity. If a challenge to the validity is made (as has been in these proceedings) the underlying transaction has to be investigated and the matter ruled upon.

80.  In fact, Ms Ling herself submitted in the course of her submissions that even if the 3^rd Mortgage remains registered in the Land Registry, it cannot have any priority over the SPA and the Assignment and affect the parties who obtain interest through D2. It seems to me that that is a clear acceptance of the lack of utility in granting the injunction sought.

81.  For all the above reasons, I am of the view that refusing to grant an order in terms of paragraph 2 of the Summons would carry the lowest risk of injustice and cause the least irremediable prejudice.

82.  As for costs, following submissions, there was some consensus between counsel that given that D2 succeeded in obtaining from this Court an order in terms of paragraph 1 of the Summons but otherwise failed, P should be awarded a percentage of the costs of and occasioned by the Summons.

83.  Mr Cheung submitted that the appropriate percentage should be at least 95%, having regard to the fact that this application ought not have to be taken out in the first place (for all the reasons he had submitted e.g. delay, lack of utility and that there were other more appropriate procedures to have the issues resolved speedily) and the unsatisfactory state of D2’s evidence filed in support of the Summons.

84.  On the other hand, Ms Ling submitted that D2 should only pay 70% of the costs of and occasioned by the Summons, given the evidence dealt with common factual background and both the 2^nd Mortgage and 3^rd Mortgage.

85.  On a broadbrush approach, in view of the limited success of D2, the bulk of the evidence and submissions as well as the time spent at the hearing were related to paragraph 2 of the Summons, I considered that a just order was for D2 to pay to P 75% of the costs of and occasioned by the Summons, with certificate for counsel. I therefore so ordered.

86.  Although Ms Ling submitted that P’s costs should be taxed if not agreed, I agreed with Mr Cheung that summary assessment is appropriate. I therefore gave directions for the lodging of D2’s objections to P’s Statement of Costs submitted to me at the hearing and any reply by P for summary assessment by me on paper.