DRAGON ACCESS HOLDINGS LTD v. ESTATE GENERATION GROUP LTD AND OTHERS

HCA 731/2021

[2021] HKCFI 2360

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 731 OF 2021

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REASONS FOR DECISION

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1.  By a Writ of Summons issued on 11 May 2021, the Plaintiff seeks, inter alia, an injunction to restrain the 3^rd Defendant from selling or disposing of a landed property comprising of the whole of Ground Floor, Lead On Industrial Building, No. 18 Ng Fong Street, Kowloon (the “Property”).

2.  Thereafter, a Statement of Claim was filed on 9 June 2021, which tracked the causes of action pleaded in the Writ of Summons.

3.  By a Summons dated 3 August 2021 (the “Summons”), the Plaintiff applied for an interim injunction to (1)  preserve the proceeds of the sale of the Property to Tech Full Limited under a Provisional Sales and Purchase Agreement dated 21 April 2021 (the “PS&P Agreement”); (2)  restrain the 1^st to 3^rd Defendants from disposing of the proceeds of sales of the Property (the “proceeds”).

4.  In Paragraph 2 of the Summons, an application is made for an “interim-interim” injunction essentially on the same terms in light of the imminent completion of the sales of the Property on 30 August 2021.

5.  Upon hearing Mr Michael Ng, Counsel for the Plaintiff, I granted the interim injunction pursuant to Paragraph 2 of the Summons. Here are my reasons for the decision.

Service of the Summons

6.  Up to the hearing of the Summons on 6 August 2021, Messrs C&Y Lawyers were the Solicitors on record for all Defendants.  Hence, the Summons was served by hand on Messrs C&Y Lawyers at about 4:50 pm on 3^rd August 2021.

7.  By a letter dated 5 August 2021, Messrs C&Y Lawyers informed the court that their firm had filed a summons applying to cease to act since they had not received any further instructions from all the Defendants.  Very properly, Miss Choi of Messrs C&Y Lawyers attended the hearing of the Summons before me to appraise the Court of the latest position, although she did not take any active role in the hearing.

8.  The service of the Summons was supported by the Affirmation of Ip Wai Hung Harry filed on 5 August 2021.  In all circumstances, I am satisfied that the Summons was properly served and the hearing should proceed, inter parte, though in the absence of the Defendants.

Salient Facts

9.  The Plaintiff and the 1^st Defendant are no strangers to the Court. The related disputes between them were the subject matter of a judgment (the “Judgment”)  handed down by Madam Justice Au-Yeung on 13 November 2020 (under HCMP 1355/2019). The pertinent facts are succinctly set out in paragraphs 2 to 11 of the Judgment, which I gratefully adopt.

10.  To cut the long story short, on 22 February 2019, at a total consideration of HK$92,000,000, the Plaintiff entered into an agreement with the 1^st Defendant to purchase (1)  the only one issued share of the 3^rd Defendant held by him; and (2)  the 1^st Defendant’s rights in certain shareholder’s loan advanced by him to the 3^rd Defendant which was found to be in the sum of HK$13,268,677 (the “Share Purchase Agreement”).

11.  Accordingly, the Plaintiff paid a deposit to the 1^st Defendant in the sum of HK$18,400,000 (the “Deposit”). Since the Property was the only asset of the 3^rd Defendant, the value of the only one issued share of the 3^rd Defendant (i.e. subject matter of the Share Purchase Agreement)  is represented by the value of the Property.

12.  The Share Purchase Agreement provided for (1)  a mechanism for disclosure to the made by the 1^st Defendant for the purpose of due diligence investigation; (2) compensation in the event that the 1^st Defendant was in breach of it by failing to perform certain terms thereunder.

13.  By virtue of the Judgment, the Plaintiff is judgment credit of the 1^st Defendant in total sum of HK$36,800,000 (i.e. HK$18.4m for return of the deposit plus another HK$18.4m by way of compensation).

14.  A declaration was also granted under the Judgment in the following terms:

“(4)  … the Plaintiff is entitled to a lien on the Sale Share and the Shareholder’s Loan for the Deposit, the Compensation, interest on the Deposit and the Compensation, costs incurred by the Plaintiff in its due diligence and/or title investigation under the [Share Purchase Agreement], and the costs of these proceedings.”

15.  It transpired that prior to the Judgment, on 31 October 2019, the 1^st Defendant took steps to dilute the only one share of the 3^rd Defendant by issuing and allotting 9,999 shares of the 3^rd Defendant to the 2^nd Defendant, which was a company controlled by the 1^st Defendant.

16.  This happened during the time of the dispute between the Plaintiff and the 1^st Defendant over the performance of the Share Purchase Agreement.  The only reasonable conclusion to be drawn in the circumstances is that the dilution of the share was to “pull the rug under the feet” of the Plaintiff so that the only share of the 3^rd Defendant to be acquired by the Plaintiff would be rendered valueless. This speaks volume of the commercial morality of the 1^st Defendant or the lacking thereof.

17.  In due course on or about 10 May 2021, it came to the Plaintiff’s attention that at the behest of the 1^st Defendant, the 3^rd Defendant had entered into the PS&P Agreement on 21 April 2021 with completion set for 30 August 2021.

18.  Thereafter between 18 May 2021 and 18 July 2021, the Plaintiff’s Solicitors sensibly entered into correspondence with Messrs. C&Y Lawyers seeking the Defendants’ agreement to voluntarily enter into an arrangement to preserve the proceeds, pending resolution of the remaining disputes between the parties.  Unfortunately, the Plaintiff’s request was met with procrastination on the part of the Defendants. Hence, the Summons was issued on 3 August 2021.

19.  To complete the background, on the strength of the Judgment, the Plaintiff has obtained various charging orders in respect of the 1^st Defendant’s beneficial interests in four other landed properties.  However, by reasons of the numerous prior encumbrances by way of multiple mortgages on these properties, very little, if anything, is likely to be recovered from the 1^st or 2^nd Defendant under the charging orders.

20.  In the premises, I am satisfied that (1)  the Plaintiff has more than a good arguable case against the 1^st to 3^rd Defendants; (2)  the proceeds are asset within jurisdiction; (3)  the balance of convenience is in favour of granting an injunction against the 1^st to 3^rd Defendants in respect of the proceeds; (4)  there is a real risk of dissipation in view of the low commercial morality of the 1^st Defendant, who is in control of the 2^nd and 3^rd Defendants.

21.  Accordingly, I granted the interim injunction pursuant to Paragraph 2 of the Summons in accordance with the draft submitted by the Plaintiff on 6 August 2021, which was approved with minor amendments.  I also gave consequential directions for filing of affirmations for the substantive hearing of the remainder of the Summons with costs reserved.