CHINA UNITED HOLDINGS LTD AND OTHERS v. LAM HOW MUN PETER AND OTHERS

HCA 1589/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1589 OF 2003

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JUDGMENT

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1. I will deal first of all with the summons handed up this morning for leave to amend the summons dated 31 May 2005.  I give leave to the 3^rd plaintiff to amend the summons and make an order in terms of that summons, save that in para. 1 the words “the Petitioner” should be “the 3^rd plaintiff”.

2. This matter comes before me today by way of an urgent application by the 3^rd plaintiff. 

3. On 12 May 2005 Master Hui ordered the 2^nd and 3^rd plaintiffs to provide further security for the 6^th defendant’s costs in the action in the sum of $600,000.00 within 28 days from that day.  Meanwhile, the proceedings against the 6^th defendant were ordered to be to be stayed pending payment of the security.  The plaintiff asks for an uplift of the stay to enable it to make this application. 

4. The application is for an interim injunction in the terms set out in para. 3 of the amended summons, namely,

“	pending the further hearing of the applications made in paragraphs 4 to 7 (inclusive) of this summons :
	(a)	an interim injunction :-
		(i)	requiring the 6th defendant to cause or procure the receivers and managers appointed by it on the 27th  May 2005 to cease and desist from all further conduct under their powers of appointment over all that land and property situate at and known as the Basement, No. 28 Marble Road, North Point, Hong Kong (“the Basement Premises”); and
		(ii)	enjoining and restraining the 6th defendant from exercising those various powers permitted to it and stated to be the Lender’s Powers as referred to in the Legal Charge dated 25 September 1997 over the Basement Premises;
	(b)	such further directions as this Court may deem appropriate.”

5. The background to these proceedings is that in 1997 the 6^th defendant made a 5 year loan of $235 million to the 3^rd plaintiff for the 3^rd plaintiff to use as 50% of the purchase price of premises in North Point being the Basement Premises.  The loan was secured by, inter alia, a legal charge dated 25 September 1997 over the Basement Premises. 

6. In 2003 the 3^rd plaintiff defaulted on the loan and a demand was made for repayment in May 2003.  The loan was not repaid.  However, these proceedings were brought by the plaintiffs, including the 3^rd plaintiff.  Allegations were made that the former directors of the plaintiffs had procured the 3^rd plaintiff to purchase the Basement Premises from the vendors at a gross over-value in breach of fiduciary duties they owed to the companies. 

7. The claims against the 6^th defendant are on the basis that the 6^th defendant dishonestly assisted in the alleged breach of fiduciary duties by making the loan when it knew or ought to have known that the purchase price was a gross overvaluation. 

8. The claims of the plaintiffs against the ex-directors and the vendors have already been settled.  The only remaining claims are against the 6^th defendant and the 7^th defendant who is a valuer. 

9. The reason for the urgency in this matter is that the 6^th defendant on 26 May 2005 appointed receivers and managers of the Basement Premises pursuant to its powers under the legal charge. 

10. The Basement Premises are divided into a number of individual shops.  They are all vacant and have been vacant for some time. 

11. Although the Basement Premises were valued by different valuers at $420 million and $315 million respectively, in 1997, the present valuation by a court appointed valuer is $40.5 million. 

12. In her affidavit, Ms Sanger states that on Friday 27 May 2005 the receivers took possession of 8 of the units in the Basement namely, units 1 - 3 and 5 - 10, by peaceably entering the premises and changing the locks.  I am told by Mr. Andrews, however, that this is disputed by his client.  Be that as it may, the application is to prevent the receivers from carrying out its powers pending a full hearing of the interlocutory injunction as stated in the summons. 

13. Mr. Andrews submitted that it is not right that the 6^th defendant should be permitted to enforce an agreement when it is in dispute between the parties whether that agreement is enforceable at all.  He drew my attention to the fact that the 6^th defendant had tried to present a winding up petition against the 3^rd plaintiff but was enjoined from doing so.  In his judgment dated 15 August 2003, Waung J held that there was a genuine dispute between the parties and that the 3^rd plaintiff’s claim was arguably a genuine and substantial claim against the 6^th defendant.       Master Charles Wong on 4 February 2004 also refused summary judgment to the 6^th defendant on its counterclaim against the 3^rd plaintiff as he held that there were issues to be tried between the 3^rd plaintiff and the 6^th defendant. 

14. Mr. Andrews submitted that the 3^rd plaintiff’s right is to have determined whether the legal charge should have any impact on the Basement Premises of which the 3^rd plaintiff is the registered owner.  The problem with that, as I see it, is that the 3^rd plaintiff’s claim against the 6^th defendant is one for damages and equitable compensation.  The prayer at para. (19) against, inter alia, the 6^th defendant is for “damages or equitable compensation as dishonest accessories”.  There is no claim for setting aside the legal charge.  It is purely a claim for damages or equitable compensation.  It is a claim for money only. 

15. Mr. Jamison, for the 6^th defendant, submitted, correctly in my view, that a mortgagee’s right to possession is an incident of his estate in the land.  A mortgagee’s right to possession will not be affected by the mortgagor’s counterclaim or cross-claim of unliquidated damages by way of equitable set-off even if the amount of set-off may exceed the mortgage debt (See Ashley Guarantee plc v Zacaria [1993] 1 All ER 254, National Westminster Bank plc v Skelton [1993] 1 All ER 242 and page 640 SH Goo’s Land Law in Hong Kong).

16. In the circumstances, I do not think that it is right to grant the 3^rd plaintiff the interim injunction that it seeks. 

17. I would add that in the exercise of my discretion I would not have granted the interim injunction sought.  The premises are vacant and have been vacant for some time.  They are not generating any income.  As at 21 January 2005 the total sums due and owing by the 3^rd plaintiff to the 6^th defendant was approximately $85 million as is shown by the affidavit of Ms Sanger.  Interest is still accruing.  The premises are valued only at $40.5 million by the court appointed valuer although the 3^rd plaintiff disputes the valuation.  Mr. Jamison submitted that the 6^th defendant intends to try to market the Basement Premises to tenants in order to generate some income from it which undoubtedly is for everyone’s benefit. 

18. The 1^st plaintiff is a substantial bank.  The 3^rd plaintiff, on the other hand, is in a precarious financial position which led to the making of the order by the Master that it provide further security for the 6^th defendant’s costs of the action.  If the 3^rd plaintiff is able to establish that the appointment of the receivers by the 6^th defendant was wrongful and that the 3^rd plaintiff had suffered loss as a result, the 3^rd plaintiff will be able to obtain damages against the 6^th defendant which, after all, is a substantial bank.  It would seem to me that the balance of convenience is against the grant of an interim injunction and in the exercise of my discretion I would also have refused the plaintiff the interim injunction. 

19. Furthermore, for an applicant to obtain an interlocutory injunction the court would in any event require as a condition for the grant of the interlocutory injunction a cross-undertaking in damages.  The situation would be the same for an interim injunction.  Mr. Andrews submitted that it was inappropriate at this stage to offer a cross-undertaking in damages and his client has not offered one.  Without a cross-undertaking in damages to be suitably fortified in this case in view of the financial position of the 3^rd plaintiff, I would not have been inclined to grant an interlocutory injunction in any event. 

20. The application is dismissed.