STAR RAINBOW INVESTMENTS LTD v. LIN PAI CHING AND OTHERS

HCA2410/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2410 OF 2009

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DECISION

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Introduction

1. This is the 1^st defendant’s application for leave to appeal to the Court of Appeal against an interlocutory injunction made on  4 December 2009.

2. By the Order, the 1^st defendant was compelled to apply for the discharge of a charging order to show cause dated 1 April 2009 and a charging order absolute dated 15 May 2009 (collectively “the Charging Orders”) registered against the property known as No.11 Changsha Street, Kowloon (“the Property”). 

3. The Charging Orders were granted in HCA 363 of 2009 in which the 1^st defendant is the plaintiff and Labour Buildings Limited (“LBL”), is the defendant.  In HCA363 of 2009, the 1^st defendant sued in her capacity as the authorized attorney of the 2^nd defendant (China States Limited).  LBL is the 4^th defendant in this action.  It was at the material time the registered owner of the Property.  The Charging Orders were registered on 20 April and 1 June 2009.

The Agreement

4. The background of this action is long and complex.  But for the purpose of the interlocutory injunction, it is sufficient to refer to the provisional agreement for the sale and purchase of the property dated 10 July 2009 (“the Agreement”).

5. The Agreement was made between the plaintiff, the 1^st, 2^nd, 4^th and 5^th defendants and also Savills (Hong Kong) Limited as estate agent.  Under the Agreement, the plaintiff agreed to purchase and LBL agreed to sell the Property together with two hotel licences at the price of HK$147 million.  LBL and the 2^nd defendant (China States Limited) were respectively the holders of the two hotel licences. 

6. The 5^th defendant (Winland Mortgage Limited) joined in the Agreement as the mortgagee of the Property under a Debenture and an Assignment of Sales Proceeds both dated 8 August 2008.   On 26 November 2009, in exercise of its power under the Debenture, the 5^th defendant appointed receivers over the Property and the undertakings of LBL.

7. The completion date under the Agreement is 14 December 2009.

8. The following provisions in the Agreement are relevant for the present purpose:

(1)      Clause 8: “It is a condition of this Agreement that the Property shall be sold to the Purchaser or its nominee or sub-purchasers free of all encumbrances, in particular:-

(a)   upon completion, the Vendor shall at its own costs and expenses obtain a full release and discharge of the Debentures and the Charging Orders respectively registered against the Property;

(b)   Lin Pai Ching as the authorized attorney of China States shall discharge / vacate the registration of the Charging Orders against the Property before completion.” (emphasis added)

(2)      Clause 9: “It is a condition of this Agreement that on or before 7 days before Completion, the Vendor shall procure China States as tenant (“Tenant”) to enter into a lease (in the form stipulated by the Purchaser’s solicitors and to be signed in escrow pending completion of the sale and purchase) of the Property with the Purchaser as the landlord for the term and at the rent (“the Lease”) upon the following terms and conditions:-

… ”

The application for interlocutory injunction

9. On 2 December 2009, the plaintiff commenced this action.  By summons filed on the same day, the plaintiff applied for a number of interlocutory injunctive relief against the defendants, including an order compelling the 1^st defendant to proceed to discharge the Charging Orders and/or to vacate their registration in the Lands Registry.

10. The plaintiff’s application against the 1^st and 2^nd defendants is on the basis that despite reminders and requests, they had failed to take steps to fulfill their duty under the Agreement and/or to progress with the discharge of the Charging Orders.  It is stated that as the registration of the Charging Orders constituted encumbrance to the title of the Property, HSBC to whom the plaintiff was applying for mortgagee facility to complete the purchase had indicated that the mortgage would only be granted if the title was clear.  The plaintiff was concerned that if the Charging Orders were not discharged before 14 December 2009, it might fail to complete the purchase on as stipulated under the Agreement.

11. The summons was returnable on the Summons Day on Friday 4 December 2009.  The 1^st and 2^nd defendants were represented by counsel on the instruction of Messrs NK Tsang & Co (“NKT”).  The following arguments were raised by their counsel in the skeleton submission:

(1)     There is no serious question to be tried because the clause 8(b) of the Agreement only provided that the discharge of the Charging Orders should be done before completion without specifying a date, and the defendants had not evinced an intention not to take steps to discharge the Charging Orders.

(2)     Under clause 9 of the Agreement, the plaintiff had agreed to grant a five-year lease to the 2^nd defendant; hence its assertion that it was not so obligated is incorrect.

(3)     Alternatively, the balance of convenience lied in favour of the 1^st and 2^nd defendants because the plaintiff only needed to have the sealed copy order of discharge on or before completion, the defendants had not evinced an intention not to discharge the Charging Orders and also that the plaintiff was in a position to extend the completion date.      

The decision on the grant of interlocutory injunction

12. I agree the plaintiff’s submissions that the Court should approach the application for interlocutory injunction by considering the likelihood of the plaintiff succeeding at trial.  This is because the interlocutory injunction sought by the plaintiff, if granted, would have the effect of disposing of the claim: Hong Kong Civil Procedure 2010 vol.1 para.29/1/18.

13. Contrary to the 1^st defendant’s belief and assertions in her affirmation dated 4 December 2009 opposing the interlocutory injunction, it is plain from clause 8(b) of the Agreement that the obligation of the 1^st and 2^nd defendants to discharge the Charging Orders arose before completion and not “on or before completion” and that this obligation was not subject to any condition precedent.  Her belief that the timing for the discharge of the Charging Orders was linked to the timing of the approval of the lease to be entered into by the 2^nd defendant is not borne out by the terms of the Agreement.  Likewise, to the extent that the 1^st and 2^nd defendants seemed to suggest that the obligation under clause 8(b) was tied up with and/or conditional upon them being paid $28 million, being the amount said to be due from LBL, there is nothing in the Agreement to this effect.  Quite the contrary, clause 8(b) only provided for the discharge of the Charging Orders before completion.

14. It is further the 1^st and 2^nd defendants’ contention that clause 9 imposed on the plaintiff a duty to grant a five-year lease to the 2^nd defendant and that this was the consideration for the discharge of the Charging Orders.  The lease was said to be an integral part of the bargain between the plaintiff and the 1^st and 2^nd defendants.  However, clause 9 did not have the effect contended for.  The clause obliged LBL to procure the 2^nd defendant to enter into a lease with the plaintiff, but was silent as to whether the plaintiff was obliged to grant a lease to the 2^nd defendant.  Further, there is no provision in the Agreement that indicated, let alone provision, that the lease was the consideration for the defendants’ agreement to discharge the Charging Orders. 

15. Accordingly, it is not open to the 1^st and 2^nd defendants to contend that because the plaintiff had not agreed to enter into a lease with the 2^nd defendant or that the plaintiff had not provided a draft lease for the 2^nd defendant’s consideration, they did not have a present obligation to take steps to discharge the Charging Orders.

16. The evidence before the court shows that up to the time of the hearing, the 1^st and/or 2^nd defendants had taken no step to procure the discharge of the Charging Orders.  At the hearing, the completion date was 10 days away, with two Saturdays and Sundays (which are not court working days) in between. The plaintiff was justifiably concerned whether the order for discharge of the Charging Orders could be obtained in time to enable it to arrange for the necessary finance for completion.  The 1^st defendant’s suggestion in her opposing affirmation that it was a simple task to vacate the Charging Orders ignores the important fact that the defendants were also obliged to discharge the Charging Orders, which would require time.  The reference to usual solicitors’ undertaking is also irrelevant since clause 8(b) requires the discharge and vacation to be accomplished before completion.  The defendants’ argument that there was no urgency or necessity for interlocutory relief is therefore misplaced. 

17. As to the argument that the plaintiff could have obtained an extension of the completion date is an irrelevant consideration.  It cannot be right to subject the plaintiff to the burden of seeking an extension to complete in order that the defendants could be at liberty not to comply with their contractual obligation.   

18. Having regard to the evidence before the court at the hearing, I take the view that the plaintiff has a high degree of success in its claim against the 1^st and 2^nd defendants and that the justice of the case requires the grant of a mandatory injunction at the interlocutory stage: see also Hong Kong Civil Procedure 2010 vol.1 para.29/1/30.

19. It was for these reasons that I granted the interlocutory injunction against the 1^st and 2^nd defendants requiring them to cause the Charging Orders to be discharged.

20. Subsequent to the interlocutory injunction, the 1^st defendant acting through NKT applied for the discharge of the Charging orders, albeit under protest.  On 9 December 2009, Master J Wong granted the application.  The sealed order was served on the plaintiff on 10 December 2009 after 5 p.m.  The sealed order, which was prepared by NKT, contained an error in the description of the Property.  Instead of “Changsha Street” it was stated to be “Changsa Street”.  It is of interest to note that this error did not exist in the draft presented to the Master’s clerk for approval.  Despite the request of the plaintiff’s solicitors to NKT on 11 and 14 December 2009, the defendants made no application to the Court to amend or rectify the order.  On 15 December 2009, when the matter was brought to Master Wong’s attention, he granted leave to amend the Order notwithstanding the application to amend and the supporting affirmation had not yet been filed with the Court.  The amended order was eventually sealed on 16 December 2009. 

21. Completion under the Agreement did not take place on 14 December 2009.  With the agreement of the Receivers of the Property and the undertakings of LBL and also the 5^th defendant, the completion date was extended for seven working days.  Completion eventually took place on 17 December 2009.   

22. On 17 December 2009, the 1^st defendant filed a petition in HCCW 721 of 2009 for the winding-up of LBL.  As a result of the commencement of winding-up proceedings, the plaintiff has on 12 January 2010 issued a summons applying for a validation order under section 182 of the Companies Ordinance, Cap.32 in respect of the completion of the Property.  The summons is returnable before Harris J on 29 January 2010.

Application for leave to appeal

23. One day before the presentation of the winding-up petition, the 1^st defendant issued the present summons for leave to appeal.  The sole ground of appeal given in the summons is that completion of the sale and purchase of the Property did not take place on 14 December 2009 such that she is entitled to have the Charging Orders reinstated.

Reasons for decision on the leave application

24. Section 14AA(1) of High Court Ordinance, Cap.4 provides that no appeal lies to the Court of Appeal from an interlocutory judgment or order of the Court of First Instance unless with leave.  Section 14AA(4) further provides that leave shall not be granted unless the court hearing the application for leave is satisfied that: (i) the appeal has a reasonable prospect of success; or (ii) there is some other reason in the interests of justice why the appeal should be heard.

25. I do not accept the fact that completion of the sale and purchase of the Property did not proceed on 14 December 2009 affords the 1^st defendant with a ground of appeal.  The 1^st defendant’s obligation to discharge the Charging Orders stems from clause 8(b) of the Agreement.  The obligation was required to be performed before completion.  The obligation was not conditional upon completion taking place on 14 December 2009.  Although completion did not take place on 14 December 2009, it did eventually take place on 17 December 2009.  The argument that as the discharge of the Charging Orders was to facilitate completion, the Charging Orders should be reinstated when there was no completion on 14 December 2009 is misplaced.

26. The 1^st defendant argued that it is unjust that the Charging Orders should be discharged before and without the judgment debt owed by LBL was paid off and/or without granting the lease to the 2^nd defendant.  As explained above, the Agreement does not provide for the discharge of the Charging Orders to be subject to or conditional upon the judgment debt being paid off or upon the granting of the lease.                   

27.  I also do not accept the argument that this is a case where the interest of justice requires the appeal to be heard.

Order

28.  For the above reasons, the 1^st defendant has not made out a case for granting leave under section 14AA of the High Court Ordinance.  Accordingly, I refuse the application and dismiss the summons with costs to the plaintiff.

29.  The plaintiff had handed up a bill of costs for gross sum assessment.  The 1^st defendant indicated she would require time to consider and comment on it if costs were ordered against her.  For the purpose of conducting a gross sum assessment of the plaintiff’s costs of this application, I make the following directions:

(1) The 1^st defendant shall within 14 days from the date of this Decision lodge with the Court and serve on the plaintiff her comments on the plaintiff’s bill of costs.

(2) Within 7 days thereafter, the plaintiff shall lodge with the Court and serve on the 1^st defendant responses to the 1^st defendant’s comments (if any).