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.  The matter before me is the inter partes application to extend an injunction applied for and made ex parte restraining the 2^nd defendant from disposing of a certain property situated at 6, Sharp Street East, Hong Kong and the 1^st defendant from giving his consent to such disposal pending further order.

2.  An unusual feature of this matter is that the defendants have already been injuncted ex parte once before in respect of this property.  That was by order of 9 July 2004.  That lasted until the adjourned return date, 24 September 2004.  Then it was Reyes J declined to extend the injunction pending further order and discharged it, giving his reasons in a judgment he then delivered.

3.  On this occasion the application was made, again ex parte, and granted on 16 March 2007.

4.  The matter for me is as to whether on this occasion this the second injunction should fare better, or suffer the same fate.

Background

5.  The plaintiff and 1^st defendant are half brothers, the result of their father, Lam Tim, now deceased, having two families.

6.  The plaintiff, a son of the first family, has a sister, Susie Lam and an adopted sister Mary Lam.  A third sister Lam Mo Chun has died.  She died after their father.  The 1^st defendant, being a son of the second family, has a sister called Lam Mo Lin.

7.  Lam Tim the father died in 1983.  The 1^st defendant is the surviving administrator of his estate.  All of the children listed above are beneficiaries of the estate; that includes the 1^st defendant and the estate of Mo Chun.  There is a question mark concerning the status of Mary, whose adoption during the war years was somewhat informal; nothing turns on that in the matter now before me.

8.  There is one asset in the estate that has a significant value; this action brought by the plaintiff concerns that asset.  It is an old building situated on a small plot at 6, Sharp Street East, Causeway Bay.  That puts it in close proximity with Times Square and Lee Gardens, making it what many say a prime target for redevelopment.

9.  The parties, at least the plaintiff and the 1^st defendant whom I shall now call Sik Shi (the plaintiff) and Sik Ying (the 1^st defendant), have a history of not getting on concerning use and management of their father’s estate’s holdings.  But for the purposes of this litigation they particularly fell out when Sik Ying formed the view that in the orderly administration of the estate the property at 6, Sharp Street East, should be sold.  I shall refer to this as the Property from now on.

10.  He began to pursue this course towards the end of 2002.

11.  In 2003 he circulated the beneficiaries with the proposal that ideally it should stay in the father’s extended family, and invited offers at or above the market worth from the beneficiaries.  Just what was the market worth became a point of contention.  2003 was as we now know a bad year for Hong Kong’s economy.  But as we also now know, it quickly recovered.

12.  Sik Ying himself put in a bid, then withdrew it.  Sik Shi did not.  He could not because he had no money.  He has had to suffer a substantial payout to his ex-wife in divorce proceedings, and he is still in debt in respect of that court order.

13.  Then Sik Shi came to learn that his half-sister Mo Lin had put in an offer of $10,810,000; further, that on 4 June Sik Ying as administrator of the father’s estate and as vendor had signed an agreement with the 2^nd defendant, a company owned and controlled by Mo Lin and her son as purchaser, at this price.

14.  Complaining that Sik Ying had sold too light and on terms detrimental to the estate, and had thus behaved in breach of his fiduciary duties, and that the 2^nd defendant, whom I shall now call Advance Property, had knowingly assisted in that breach, Sik Shi brought this action on 9 July 2004, seeking to avoid the sale with various other consequential orders.

The 1^st Interlocutory Injunction

15.  On the same date, namely 9 July 2004, Sik Shi applied ex parte for an interlocutory injunction and was granted the order asked for, restraining:

“

(1)

the 1st Defendant and 2nd Defendant or any of them whether by themselves or their servants or agents or otherwise howsoever from carrying through the sale and purchase and/or completing the sale and purchase of the Sale and Purchase Agreement dated 11th June 2004 in respect of the property known as Sub-section 1 of Section A of Inland Lot. No.476, No. 6 Sharp Street East, Hong Kong until the hearing to be held on the 16th day of July 2004 at 10 am before the Summons Judge.”

16.  The original return date was extended to 24 September for affidavits and argument.

17.  A feature of the ex parte application and order was that Sik Shi was unable by virtue of the unfavourable consequences of his divorce to give the usual undertaking in damages.  The order was made notwithstanding that deficiency.

18.  Other matters to note concern the terms of the agreement for sale and purchase.  The first is that it contained a covenant that the purchaser “will not sell or in any other way dispose of the [Property] or any part thereof within 7 years from the date of this Agreement …”  The second is that the sale was entered into subject to an existing tenancy under which the Property was let at $140,000 per month.  Completion was fixed for 3 September 2004, but that was capable of being extended if necessary.  But in any event, it was agreed that the purchaser should be 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 off the purchase price.

19.  Prior to the adjourned return date, Sik Shi’s solicitors registered his writ as a lis pendens against the title to the Property.

The Judgment of Reyes J

20.  As I have already stated, the Judge found in favour of the defendants and dismissed the application.

21.  This has an impact on the application before me.  There was no appeal; this cannot become a relitigation of the matters before Reyes J.

22.  So, given that this application arises out of the same action between the same parties and concerns the same subject matter, I have to decide on whether there are further developments after 24 September 2004 to warrant the protection afforded by a second injunction that Sik Shi now applies for.

23.  I turn now to the judgment in which the application was turned down first time.

24.  Reyes J noted that Sik Shi claimed that the Property was worth $26 million against the sale price of $10.8 million.  He then reminded himself of the applicable principles laid down in American Cyanamid.  He noted both sides accepted there was a serious case to be tried.  Then he turned his attention to the balance of convenience. 

25.  I quote verbatim from his judgment, from paragraph 9:

“	9.	First and most importantly, it seems to me that the Plaintiff would be adequately protected by the registration of his statement of claim in these proceedings as a “lis pendens”.
	10.	Assume that the sale to the 2nd Defendant goes through.  If the Plaintiff is right, the 2nd Defendant would hold the property on constructive trust for the estate.  Any judgment could be enforced against the property, which being land in Hong Kong cannot disappear.  That would be true whether or not there was an injunction.
	11.	Assume now that the sale not only goes through but that the 2nd Defendant attempts to sell the property to some innocent 3rd party.  The prior registration of the “lis pendens” would serve as constructive notice of the Plaintiff’s claim.  The 3rd party purchaser would take the property subject to that interest.  Again that would be true whether or not there was an injunction.
	12.	I note that the sale and purchase agreement between the 1st and 2nd Defendants stipulates that the latter is not to alienate the property for a period of 7 years following purchase without the vendor’s permission.  A prospective 3rd party purchaser would have notice of such restrictive covenant in the sale and purchase agreement (which has been registered).  It is thus unlikely in practical terms that there would be a 3rd party purchaser before the trial of this matter.
	13.	Even if a 3rd party purchaser materialises and asks the 1st Defendant to lift the covenant, it seems to me that the 3rd party would take subject to the “lis pendens”.  Further, the 1st Defendant would be bound to inform the Plaintiff of the 3rd party’s request and make discovery in these proceedings concerning it.
	14.	Second, the Plaintiff candidly admits that he currently has no assets to make good any undertaking in damages.  Although a beneficiary of the estate, he is bound by a court order in divorce proceedings to pay some $12 million to his former wife.  That amount would consume most, if not all, of the Plaintiff’s interest in the estate.  It is therefore unlikely that the Plaintiff could make good any damages suffered by the Defendants as a result of delay to the sale and purchase of the agreement occasioned by any injunction.”

26.  Given these circumstances, the Judge exercised his discretion in finding against the need to prolong the injunction. 

27.  That said, he did not accede to the proposition put up by Sik Ying’s counsel Mrs Chan (who represents him before me) that the Judge dealing with the ex parte application had been misled or that it was otherwise inappropriate for the matter to have been initiated ex parte.

28.  He ordered costs to be in the cause.

The 2^nd Interlocutory Injunction

29.  This came before the Judge ex parte on 16 March 2007.  It was advanced by Mr Hung who has all along represented Sik Shi.

30.  For the purposes of this application a transcript of the hearing was prepared and I have read it.

31.  Those matters which particularly concerned Sik Shi and his advisors were twofold.

32.  The first was that Sik Ying as vendor and Advance Property as purchaser had completed the sale of the Property.  That was in February 2007, with registration in March 2007.  The purchaser had paid in full the balance of what was due.  By that I mean there was a substantial set-off of rent that had accumulated from June 2004, thus for some 32 months.

33.  The second was that on real estate evidence the value of the Property is now $50-60 million.

34.  Mr Hung put forward the proposition that with such a massive increase in value Advance Property might be able to sell the Property albeit at a substantial discount because of the fetter on the title and still make a killing at the expense of the estate and its beneficiaries.  This could not have been foreseen when the injunction was not extended back in September 2004.

35.  One matter remained unchanged since the 1^st injunction; that is that Sik Shi remained and still is insolvent and was again unable to give the undertaking in damages that is the usual prerequisite.

36.  The Judge was prepared to accede to the application and made the order asked for.

The Hearing Inter Partes

37.  Now the matter is before me.

38.  First I give consideration to the recent developments.

39.  It can be of no particular surprise, or concern, that vendor and purchaser have completed.  After all they were committed.  I have not examined the agreement in detail, but I suspect with the advent of the writ having been registered against the title the purchaser could have walked away from the transaction; or not.  He chose not to.  The consequences of that were contemplated by Reyes J; so was the possibility that Advance Property might attempt a sale on.

40.  The Judge was content with the protection afforded by the lis pendens, and the convenant preventing disposal for 7 years.  Nothing has changed to jeopardize Sik Shi’s claim since then.

41.  That the Property has gone up in value is simply a feature of Hong Kong’s market in real estate.  I should say that Sik Shi’s estimate of current worth is miles apart from that advanced by the defendants.  One matter which materially impacts is the size of the plot.

42.  But that is a matter for trial.  In any event I should have thought that the real question is the worth of the Property when it was sold to Advance Property; that is mid-2004.  Also for trial are the unusually favourable terms which allowed the purchaser to enjoy the fruits of the Property, the gross rentals, not from the date of completion but the date of commitment.  That is also a matter for trial.

43.  The hike in the worth of the property now does not change the thought processes behind Reyes J’s belief that on balance the lis pendens and restrictive covenant afforded adequate protection.

44.  What has not changed to improve Sik Shi’s position is that he is still unable to give any undertaking in damages.

45.  In my view there is no significant change as would warrant the extension of the injunction made in March 2007.  It is now discharged.

Should the Application Have Been Made Ex Parte?

46.  It is common enough that interlocutory injunctions begin life as orders made ex parte.  Much less common is a second application made after the discharge of the first, advanced in this way.  By this time, as here, pleadings have been filed, parties represented, battle lines drawn.

47.  I remind myself of the applicable principles set out in the White Book at 29/1/50:

“	Ex parte applications
	The starting-point is that applications for interlocutory injunctions should be made inter partes after the commencement of proceedings.  It is contrary to the principles of natural justice that any judicial order adversely affecting a party’s interest should be made without the party being given a reasonable opportunity of being heard.  Derogations are only permitted in certain limited and exceptional circumstances, the most obvious of which is a situation which concerns matters of such extreme urgency that there is no time to warn the defendant of what is proposed, or where the purpose of the injunction will or may well be frustrated if the defendant is informed of what is proposed, or where the defendant simply cannot be found.  The exceptional nature of the circumstances for an ex parte application must be stressed.  (TRP Ltd v. Thorley, unreported, July 13, 1993, CA; Ho Tak Eng t/a Hung Man Interior Design Co. v. Fame Brilliant Ltd [2005] 1811 H.K.C.U. 1, [2005] H.K.E.C.2037) Order 29, rr.1(2) and 1(3) make it clear that, however, in cases of urgency, the plaintiff may make the application ex parte on affidavit, even before the issue of proceedings.  If proceedings have not been issued, the usual form of order will contain an undertaking by the plaintiff to issue proceedings forthwith.  The issue of proceedings applies even if no injunction is granted on the application, and even if the plaintiff decides not to continue the proceedings (Dragon Capital Partners LP v. Merrill Lynch Capital Services Inc. [1996] 4 H.K.C. 198).
	The application may be made ex parte either by reason of urgency, or by reason of the need for confidentiality.
	…”

48.  A read of this excerpt is enough to remind one that although applications ex parte are routine, they must still emerge in exceptional circumstances only.

49.  There was never the need in this case.

50.  Whether the Judge on 16 March would have come to the same decision as he did had he heard argument put forward in opposition is neither here nor there.

51.  The fact that the defence was not given the opportunity was to deny the defendants the natural justice of being entitled to put their case.

Costs

52.  These are nisi.

53.  The costs of the 1^st and 2^nd defendants shall be borne by the plaintiff on a common fund basis and are to be taxed and paid forthwith.