LAM SIK SHI v. LAM SIK YING AND ANOTHER

HCA 1605/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1605 OF 2004

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J U D G M E N T

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1.  This is yet one more interlocutory application in a series of them brought by the plaintiff in this action against the defendants.  The property the subject of this action and of the applications is an ancient building situated at 6, Sharp Street East, Causeway Bay.  The 1^st defendant was the owner, as sole trustee of an estate.  He is also one of the beneficiaries.  So is the plaintiff, and so is the effective proprietor of the 2^nd defendant company. 

2.  The 1^st defendant sold the property in question to the owner of the 2^nd defendant, who nominated the 2^nd defendant as purchaser.  The plaintiff was aggrieved at this because it was his belief that the property was worth a good bit more than the price negotiated, at the expense of the remaining beneficiaries of the estate.  He filed this action, seeking a declaration that the sale is void or voidable and an injunction to prevent completion.  In the alternative he sought to have the 2^nd defendant held to account as constructive trustee of the estate.

3.  On two separate occasions in time the plaintiff sought an interim injunction to halt the sale pending final determination.  Both at first succeeded when applied for ex parte, but both came to be discharged when inter partes on their respective return dates.

4.  The sale has now been completed, albeit subject to a lis pendens, being the registration by the plaintiff of this writ.

5.  This the plaintiff’s third interlocutory application is to ask the court to order a sale of the property under O.31 r.1 RHC, with the proceeds to be paid into court pending final determination; alternatively, under O.30 r.1, for the appointment of receivers to administer the estate and in particular rents past, present and future paid or payable by tenants of the building.

6.  This is part only of a longstanding bitterly fought feud between the plaintiff and the 1^st defendant over the estate. They are brothers, or rather half-brothers.  The estate is that of their father.  He had a wife and children from her.  The plaintiff (Lam Sik Shi) is one of them.  Then the father took a second wife and there were children of that union.  The 1^st defendant (Lam Sik Ying) and the proprietor of the 2^nd defendant (Lam Mo Lin) are two of them.

7.  The father died intestate in 1983 owning a number of various properties and it was then the feud began in earnest and has continued ever since.  For a long time there was inaction in the administration of the estate.  At this time Lam Sik Shi was in apparent control.  But Lam Sik Ying in due course was to accuse him of gross mismanagement causing losses suffered by the estate running into millions of dollars.

8.  In the fullness of time Lam Sik Ying came to be appointed administrator and one of his tasks was to bring an action against Lam Sik Shi, suing to recover those losses.  Lam Sik Ying’s response to this the action brought against him by Lam Sik Shi is that it is wholly without cause and is a tactic by his brother to defer the inevitable outcome of that earlier action.

9.  That may or may not be so; in the meantime, it behoves me to deal with this the third interlocutory application brought by Lam Sik Shi in this action.

Background

10.  During the history of his administration of the estate the primary duty of Lam Sik Ying has been to manage the old building at 6 Sharp Street East.  There was nothing particularly special about the building; indeed it was dilapidated and at one stage in danger of being closed down, and its worth reflected that.  But all that changed with the completion of the developments at nearby Times Square and Lee Gardens.  Now, at least according to Lam Sik Shi, there has been a surge in its value as a site for redevelopment, albeit that its “footprint” is of modest size only.

11.  Meanwhile, there were pressing debts for Lam Sik Ying to pay, not the least of which were death duties incurring interest.  In order to meet these and to pay to the beneficiaries their entitlement in the estate he put the property up for sale.

12.  At first he promoted it to the world at large and attracted some offers, the highest of which was $10.81 million.  But then Lam Sik Ying formed the view that, in deference to their late father, if at all possible the property should be kept in his extended family.

13.  He tested the feasibility of this plan by inviting bids from his siblings and half-siblings.  By now it was 2003, the year of the infamous SARS outbreak.

14.  Regrettably, at least from his standpoint, Lam Sik Shi was in no financial position to compete.  He had recently been on the wrong end of an ancillary relief payout to his wife, now ex-wife, in divorce proceedings.  The timing proved his undoing; the order made reflected the then worth of a significant property portfolio.  But before he could realize on it there was a crash in the market.  After the dust had settled he was left with a debt to her of $12 million and only a half-share in a building in Sharp Street, right next door to the estate’s property Lam Sik Ying was looking to sell.  Ironically, given that for years they have been at loggerheads, his co-owner is Lam Sik Ying.  The ex-wife has a charging order over his undivided half-share. 

15.  Others of the two families were not in a position to bid for the estate property or were not interested.  One who was and who did was Lam Mo Lin, who now lives with her family in Canada.

16.  Her offer was for $10.81 million, and Lam Sik Ying accepted it.  The upshot was that there came into being on 4 June 2004 an agreement between Lam Sik Ying as administrator of the estate and the 2^nd defendant (Advance Property), whom Lam Mo Lin nominated in her stead.

17.  There were several features incorporated into the agreement worth recounting.  The first was that the purchaser covenanted with the vendor not to sell or otherwise dispose of the property for a period of seven years from the date of the agreement.  The second was that the sale was entered into subject to an existing tenancy under which the building was let at $140,000 per month.  Completion was fixed for 3 September 2004, but that was capable of being extended if necessary. 

18.  Then a term which in the event was to be highly advantageous to the purchaser; that the purchaser was entitled to receive the rent as from 4 June 2004, and be credited with that rent paid and received between 4 June 2004 and the actual date of completion, by consequent reduction of the purchase price.

19.  Lam Sik Ying gave notice of the sale to the other beneficiaries.  The reaction of Lam Sik Shi was at once to allege that his half-brother had sold out at a price far below the true worth of the property to the detriment of the estate and thus the remaining beneficiaries.  He was in breach of his fiduciary duties, and Advance Property as purchaser had knowingly assisted in that breach.  Lam Sik Shi brought this action, filing it on 9 July 2004.

The First Interlocutory Application

20.  This came into being on the day the writ issued.  Lam Sik Shi filed ex parte for an interlocutory injunction to restrain the parties from completing the sale pending determination.  He got his order, notwithstanding that because of his impecunious circumstances he was not able to give the usual undertaking in damages.

21.  But the order did not advance past the inter partes stage.  By the date of hearing Lam Sik Shi had caused his writ to be registered as a lis pendens, and Reyes J was satisfied that interim injunctive relief was not warranted.  Consequently, he dismissed the application and discharged the ex parte order.

The Second Interlocutory Application

22.  Undaunted, Lam Sik Shi filed again, again ex parte, seeking the injunction that would restrain the parties from acting on their agreement.  This came before the duty judge on 16 March 2007 and was granted.

23.  However, history was repeated when inter partes the matter came to be heard.  As it happened I was the judge at that hearing. 

24.  What had agitated Lam Sik Shi and his advisors was that after a delay of some years the vendor and purchaser had completed the sale; this in February 2007, and the assignment had been registered in March 2007, subject to Lam Sik Shi’s lis pendens.  But by virtue of the significant delay in completion there was a substantial set-off in the amount Advance Property was required to pay because of the accumulation of rent credited under the agreement towards the purchase price. 

25.  Further, there had been a huge increase in the value of the property by virtue of the Hong Kong market’s recovery from the 2003 SARS imposed slowdown.  It was argued before the judge ex parte and again before me that even with the encumbrance of the lis pendens, such were the huge gains potentially available that Advance Property might be able to attract a purchaser and for significant discount sell subject to Lam Sik Shi’s encumbrance and the seven years restriction on alienation, rendering nugatory a judgment in favour of Lam Sik Shi should he be fortunate enough to succeed.

26.  I ruled against the application, finding that the same principles and facts applied as before when Reyes J declined the first application.  The lis pendens was still notice to the world of Lam Sik Shi’s claim.  That there had been an assignment from one defendant to the other was no surprise.  That the property had subsequently increased drastically in value did not change the legal positions of the parties or their rights.

27.  Furthermore, Lam Sik Shi’s financial situation still did not permit him to give an undertaking in damages.

28.  Thus an ex parte injunction for a second time was discharged, this on 17 September 2007.

29.  And so to this application.

This Application

30.  This was filed on 27 July 2007.  What was asked for I repeat in full:

“1.     Sale of the suit premises at open market either by public auction or by estate agent (as directed by the court) within 3 months from the date of the Order to be made herein at a price not less than HK$50,000,000.00, or alternatively at a price to be assessed by a surveyor to be appointed by the court and upon the sale the net sale proceeds (after deducting all necessary expenses) be paid into court for depositing in an interest-bearing account pending final determination of the action herein;

2.      Hang Seng Bank Limited or its associated companies or such other suitable person(s) to be appointed by the Court as Receiver for the purpose of dealing with the estate of Lam Tim alias Stan Lam Tim, deceased including collecting and/or receiving rental deposit and past/future rental income in respect of the suit premises known as No.6 Sharp East Street, Hong Kong pending final determination of the action herein;”

and then further directions (if any) and costs.

31.  When it finally came on for hearing, close on a year after its filing, there had been the further development of the second interim injunction having been applied for, granted ex parte and then dismissed inter partes. 

32.  Notwithstanding that setback, Lam Sik Shi pressed on with the hearing of this application.

33.  During the course of the hearing Mr Hung representing Lam Sik Shi invited an amendment to the application in this way:

first, to cause the second order asked for to be in the alternative;

secondly, to rewrite the terms of the second application, so that it came to read as follows (the amendments are in heavy type):

“2.         Hang Seng Bank Limited or its associated companies or such other suitable person(s) to be appointed by the Court as Receiver for the purpose of dealing with the estate of Lam Tin alias Stan Lam Tim, deceased and or the property described hereinafter including collecting and/or receiving rental deposit and past rental income collected by D1 between June 2002 and Feb 2007 (subject to reasonable expenses incurred by D1) and/or rental collected by D2 between February 2007 up to the date this order is to take effect and/or future rental from the date this order is to take effect in respect of the suit premises known as No. 6 Sharp Street East, Hong Kong pending final determination of the action herein;”

HCMP 1464/2004

34.  Given the nature and terms of the orders sought in the alternative in this the application before me, it is appropriate to mention that a month before the filing of this action in July 2004, that is in June 2004, Lam Sik Shi began an administrative action under HCMP 1464/2004.  By this he seeks inter alia an accounting from Lam Sik Ying in respect of moneys paid and received out of the property at 6, Sharp Street East and/or the estate.

35.  There is a defence; that Lam Sik Shi has already been fully informed.  The matter remains unresolved and pending.  It is scheduled to be tried by the same judge immediately after the trial of this action.

The Application for Sale

36.  I have taken the trouble to visit and in some cases revisit the history of this unhappy saga with its actions and counter actions because this has an impact on this application which I now come to deal with on its merits.

37.  Dealing first with that at paragraph 1 it is hard to perceive of an application for sale that is less meritorious.

38.  The matter awaiting trial is whether the sale from one defendant to the other is to be avoided or whether the owner Advance Property is now holding as constructive trustee.  If the claim is successful the property will revert to the administrator.  But if not it will remain Advance Property’s, free of the lis pendens which protects the rights of the beneficiaries, guarded by the action.

39.  Why can it possibly be countenanced that as an interim measure the property should be sold now, ahead of determining who is the lawful owner?

40.  The evidence put forward by Lam Sik Shi to support a sale is in a single paragraph in an affirmation filed on 27 July 2007:

“11.   Even if I lose at the end of the days, the estate will benefit from the proposed sale of the suit premises now; the sale proceeds would be some five to six times of the gross undervalue paid by the 2^nd Defendant.”

That was followed by a further affirmation of 31 December 2007, and another paragraph on the point:

“10.   I note that both Defendants objected to the sale of the property on the premises that the Court would accept that there had been a bona fide sale of the property.  My concern is that if at the end of the trial, it was found that there was a breach of trust on the part of the defendants and the property market drops, the estate would suffer not only the substantial amount of rental income dissipated by the defendants but also the loss of value of the property.”

41.  In neither is there any thought process as to how matters could be retrieved for the current owner if “at the end of the days” the action is lost.  Why should Advance Property be forced into accepting a sale and the proceeds thereof, instead of all the options available to any bona fide registered proprietor of real estate?

42.  In support of the application, Mr Hung went to lengths to point out irregularities in the relationship between the parties to the sale and purchase which is the target of the action.  He highlighted that it was at a gross undervalue; that there was, in the shape of who got the entitlement to rent pre-completion, a material subsidy of the purchase price by the estate; that there has been an assignment, that there has been material dereliction of the duty Lam Sik Ying owes to the beneficiaries. 

43.  This has of course all been paraded before the court at least once before; see my judgment when I dismissed the second application for an interim injunction of 17 September 2007.  I said then and I say again; these are matters for trial.

44.  The short commentary in the White Book on the topic is to point out that the court is empowered by O.31 r.1 RHC to sell land where “it appears necessary or expedient for the purposes of the cause or the matter”.  Not only is it neither necessary nor expedient, it would be highly prejudicial to invoke the power.

The Appointment of Receivers

45.  Lam Sik Shi seeks in the alternative the appointment of receivers under O.30 r.1.  In support he deposes:-

“Regardless of whether the lis pendens would be sufficient to prevent the sale of the property (whether directly or via sale of shares of the 2^nd Defendant), I verily believe that by reason of the past conducts of the defendants and the huge sum of rental at stake which the estate could without the protection of the court left with nothing, it is just and convenient to appoint a receiver.”

46.  Apart from rehashing the conduct, or rather misconduct, of the parties, he gives no reason as to why there is this need before trial.

47.  Mr Hung in his written submissions did not deal with the matter, apart from a final submission inviting the court to appoint a receiver to receive the rental held by Lam Sik Ying and future rental until the trial. 

48.  The White Book commentary at 30/1/1 points to section 21L of the High Court Ordinance, giving the court power to make the appointment when it appears just and convenient.

49.  The editors of Snell’s Equity, 31^st edition, provide insight into what is an appropriate ground for the appointment of a receiver at 17-15:

“1.  Preservation of property

(a) Disputed Property.  One of the most important grounds on which a receiver may be appointed is in order to preserve property that is in dispute until the rights of the parties can be determined.  The principle is to place the property in a state of security pending litigation.  If nobody is in possession of the property, a receiver will be appointed almost as a matter of course; it is the common interest of all parties that the Court should prevent a scramble.  On the other hand, where some person other than a bare trespasser is in possession, the former rule was that the court would not interfere with a legal title save in cases of fraud or other exceptional circumstances.  This rule has now been displaced by the Judicature Acts, but the courts are still slow to appoint a receiver in such cases; they will do so only if circumstances such as the financial responsibility of the rival claimants and the relative strength of their titles to the property indicate that this is desirable.”

50.  The issue of preservation of the property has been ventilated twice and rejected twice.  There has been no change.  Above all, there is no evidence that estate assets have been hidden, or dissipated or wasted.

51.  There is nothing before me to suggest it would be just and convenient to appoint a receiver.  There is quite simply no reason why this longstanding action should not proceed to trial, followed immediately by the trial of HCMP 1464/2004, and why, in the meantime, there should be the inconvenience of a receiver or the expense associated with his appointment.

The Result

52.  Lam Sik Shi has failed again in seeking interlocutory relief.  His application is dismissed under both heads.

53.  Costs are nisi.

54.  Subject to argument, I find as a preliminary view that these applications are both quite without merit.  If not at the time they were made, then subsequently they became vexatious.  There was no evidence or argument not already tested and found wanting.  This application was bound to follow the same fate as his previous two.  Costs are to the defendants taxed on an indemnity basis and payable forthwith.