YOUNG'S ENGINEERING CO LTD v. GOLD CHERRY CO LTD

BETWEEN: -

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JUDGMENT

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1. The defendants are the developers of the Lap Shun Centre a 17 storey Building at Kwai Chung. The defendants employed Wide Project Engineering & Construction Company Limited as the main contractor to carry out the building work for the development including the supply and installation of the air conditioning systems. The plaintiffs were nominated by the defendants as sub-contractors for the supply and installation of the air conditioning systems. A sub-contract for this purpose was entered into on about the 26th July 1982 between the plaintiffs, the defendants and the main contractor. The agreed cost for the supply and installation was $6.1 million. Payment was to be made by the defendants upon the issue of interim payment certificates by the architect by promissory notes to be presented at six monthly intervals until 1986.

2. It is also alleged by the plaintiffs that the agreement is evidenced in three letters between the plaintiffs and the defendants in 1982. The plaintiffs carried out the work which was certified by the architect to be substantially completed on the 15th December 1983. Eleven promissory notes were honoured by the defendants, but default was made in respect of a promissory note issued on the 13th April 1983, which was due for payment on the 13th October 1984. The defendants have also failed to issue promissory notes for payment due in respect of an interim payment certificate issued by the architect on the 6th September 1984.

3. The plaintiffs commenced proceedings on the 5th November 1984 against the defendants claiming a declaration that it is entitled absolutely to the air conditioning systems and equipment installed at the Lap Shun Centre and injunctive relief. On the same day the plaintiffs obtained an injunction ex parte restraining the defendants from parting with selling, charging or in any other way disposing of the air conditioning systems and equipment. The order was continued at the hearing of the inter partes summons on the 12th November 1984 with the deletion of the words "parting with".

4. On the 17th April 1980 the defendants executed a mortgage in favour of the applicant for $58 million and on the 3rd July 1981 executed a debenture creating a floating charge in favour of the applicant for $57 million. On the 12th January 1983 the defendants executed a further charge in favour of the applicant for $2 million.

5. On the 30th November 1984 the applicant entered into possession of the premises under the mortgage. The defendants' total indebtedness to the applicant at the 14th December 1984 amounted to $138,401,193.71.

6. The applicant applies by the present summons to be joined as a defendant under Order 15 rule 6(2)(b)(ii) of the Rules of the Supreme Court, and to set aside or vary the injunction order. Order 15 rule 6(2)(b)(ii) reads as follows: -

The plaintiffs contend that they have a retention of title clause as against the defendants and that the applicant has constructive notice of this clause. However, the applicant denies such knowledge.

7. The applicant's case is that the air conditioning systems and equipment have become a permanent fixture of the building and by virtue of taking possession under the mortgage they are now entitled to the property. The plaintiffs do not accept that the installation has become a fixture, but on the assumption that it is a fixture the plaintiffs' claim to the property became crystallised on the issue 6f proceedings on the 5th November 1984 which preceded the applicant's entry into possession on the 30th November 1984.

8. According to the plaintiffs the most valuable part of the air conditioning systems are the chillers which are worth approximately $4.25 million. The plaintiffs state that the chillers are demountable and can be removed from the building without causing significant damage so thereby supporting their contention that the installation is not a fixture.

9. Several authorities were cited by Mr. Ribeiro who appeared for the applicant and Mr. Keane who appeared for the plaintiffs which determined whether or not a chattel had become a fixture. However, it is not necessary for me to come to any conclusion at this stage for this is an issue to be decided at the trial.

10. Mr. Keane submitted that the applicant had no right to be joined in the proceedings as the plaintiffs could choose whomsoever they wish to sue. He also drew an analogy with a mareva injunction whereby the applicant could have the injunction varied without being made a party.

11. It is trite law that where there is a mortgage of land that as between mortgagor and mortgagee the mortgagee is entitled to all the fixtures on the land whether placed there before or after the mortgage see Mather v. Frazer 2 K & J 536, Hobson v. Gorringe [1897] 1 Ch. 182. The evidence so far presented by the applicant reveals a strong prima facie.

12. Although an acknowledgment of service has been filed by the defendants indicating that they intend to defend the proceedings it does not appear on the available evidence that there is a substantial dispute. However, be that as it may it is the plaintiffs' evidence that the defendants' finances are in a parlous state, and that apart from the air conditioning systems the defendants are not worth powder and shot.

13. The real matter in dispute is the ownership of the air conditioning systems and the real parties are the plaintiffs and the applicant. I am unable to agree with Mr. Keane's submission that the injunction can be varied without joining the applicant for the claim by the plaintiffs is for final relief.

14. As a result there will be an order for the applicant to be joined as the second defendant. The injunction will be varied to the extent that it is not to apply to the applicant upon the applicant's undertaking not to sell, charge or otherwise dispose of the property except as to the granting of tenancies in the Lap Shun Centre. In my opinion damages will afford an adequate remedy.