GRAND TRADE DEVELOPMENT LTD. v. BONANCE INTERNATIONAL LTD.

CACV 776/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 776 OF 2000

(ON APPEAL FROM HCMP 2342/2000)

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J U D G M E N T

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Hon Rogers VP :

1. This is an ex parte appeal which is brought from a decision of Chung J given yesterday. The application yesterday was itself an ex parte application on notice for a Mareva injunction. The application arises in this way.

2. There was a contract for the purchase of a flat in Bowen Place, 11A Bowen Road, which was entered on 13 April 2000. The documents relating to title were apparently delivered to the plaintiff by the defendant's solicitors late. After perusing them, the plaintiff's solicitors raised a number of requisitions. Two of these related to assignments which had been executed in 1995 and 1996 respectively. The matter which was raised in those requisitions was as to whether the seal had been properly applied.

3. In respect of the first assignment, the Articles of Association of the relevant company Manibest Investments Limited contained two provisions. The first was a provision under clause 23 which read :

"Every document required to be sealed with the Seal of the Company shall be deemed to be properly executed if sealed with the Seal of the Company and signed by the Chairman of the Board, or such person or persons as the Board may from time to time authorise for such purpose."

The Articles, we are told, did not contain article 114 of Table A .

4. That assignment by Manibest Investments Limited was to another company Winkit Properties Limited. That company had an article 21 which read :

" Every document required to be sealed with the Seal of the Company shall be deemed to be properly executed if sealed with the Seal of the Company and signed by the Chairman of the Board of Directors, or such person or persons as the Board may from time to time authorise for such purpose."

5. We are told that the Articles of Association of Winkit Properties Limited did contain article 114 of Table A which reads :

"The Directors shall provide for the safe custody of the seal which would only used by the authority of the Directors or of a Committee of the Directors authorised by the Directors in their behalf and every instrument to which the Seal shall be affixed shall be signed by a Director and shall be countersigned by the Secretary or by the Second Director or by some other person appointed by the Directors for the purpose."

6. The matter which arose was that in respect of both assignments by both Manibest and Winkit, the seal of the respective companies was affixed but the signature only bore the reference that the person signing was a director and did not bear any indication that the person signing was the Chairman of the respective companies. In those circumstances, the plaintiff alleged that the assignments were defective and if that were so, there may be a defect in the title.

7. The vendor and purchaser summons which came before Chung J on 16 October was resolved in a written decision which was handed down on 31 October. The effect of the judgment is that the judge regarded the affixing of the seal as sufficient in itself. In doing so, the judge declined to follow three cases at First Instance in Hong Kong. The first was Qualihold Investments Ltd. v. Bylax Investments Ltd. [1991] 2 HKC 589 which was a decision of Keith J (as he then was); the second was a decision of Cheung J of Li Ying Ching v. Air-Sprung (Hong Kong) Limited [1996] 4 HKC 418; and finally Ho So Yung v. Lei Chon Un [1998] 2 HKC 697.

8. It seems to me that the plaintiff will clearly have an arguable case when this matter, as it will have to, comes on appeal. The argument will be that the two respective assignments were not properly executed, and therefore that the requisitions which the plaintiff raised are valid requisitions which had not been properly answered, and in truth and in fact, technical though it may be, the title which the defendant proffered was defective. It may well be that that title could be rectified, but that is another matter.

9. In those circumstances, the application which is made today is to secure the deposit of $1.38 million which has been paid. The plaintiff is concerned that the defendant has demonstrated over the past few months that it has insufficient funds, and indeed it is likely to dissipate its funds because it was under pressure to sell the property under threat of the bank to foreclose on the mortgage.

10. It has transpired since yesterday's hearing that the plaintiff has been informed that the deposit money which was being held by the defendant's solicitors was indeed released to the defendant on 1 November. In those circumstances, the position must be recognized that it is quite possible that that money has now been repaid to the bank and has, so to speak, disappeared and is irrecoverable.

11. In my view, however, given the circumstances of the case and given the three authorities which are at First Instance and would need to be considered by the Court of Appeal, it would be right if possible to try and preserve the status quo and preserve the plaintiff's position in so far as possible until the matter is heard on appeal.

12. Subject to the plaintiff giving an undertaking to file a notice of appeal in respect of the decision of Chung J of 31 October as soon as possible, I would be disposed to order a limited form of a Mareva injunction, limited to the extent of the deposit money pending the decision on the appeal that will be forthcoming. A shortened time for filing that notice of appeal, in my view, would be appropriate. The order should be made subject to the further undertaking that that appeal will be pursued without any undue delay.

Hon Stock JA :

13. I agree with the judgment of the Vice President and have nothing to add.

Hon Le Pichon JA :

14. I agree with the reasons given by the Vice President and would also grant the injunction in the limited form.

[Discussion as to form of order]

Hon Rogers VP :

15. Since giving the judgment, it has come to the Court's attention, in the course of settling the form of the order, that the impression which I had received that the mortgage on the property was still outstanding and that the property had not been sold was wrong. It emerges from the evidence, which I did not have time to read before the commencement of the hearing, that in fact the property was sold and that there was an assignment dated 5 October and registered on 26 October by which this property was conveyed for $12.6 million. The only indication that this Court has as to the outstanding mortgage is that in the latest company return which was filed. However, that is one which is now a year out-date and was dated 30 May 1999. There the amount outstanding on the mortgage was put at $11,334,280.28.

16. Assuming that the monies paid on the assignment of the property were paid to the bank to discharge the mortgage, and there is nothing to indicate otherwise, it would seem that the defendant had a surplus on that sale.

17. Although Mr Lam has tried to argue, as best he can, that there is still a risk of dissipation of assets, and he has drawn our attention to the evidence relating to statements that the defendant was under pressure to sell, I regret that it seems to me that no risk of dissipation of assets, properly so called, has yet been shown. It may well be, unfortunately, that when this appeal comes to be heard that there may be no money left in the defendant company which may prove to be a one-property company formed simply for the purpose of holding the particular property, and it may be that such money as has now seemingly been transferred from the solicitors to the company will have been dissipated. But, it cannot be said too clearly that Mareva injunctions are extremely serious. They are very damaging, they have been described time and time again as one of the court's nuclear weapons; Mareva injunctions to prevent dissipation of assets should not be granted unless there is a clear basis on which the court can conclude that there is a risk of dissipation of assets. Unfortunately here, there is only supposition that that might be the case. There is no evidence to that effect and in my view, unfortunately, the order that I was prepared to make should not be made.

Hon Stock JA :

18. I, too, was under the impression that the funds in respect of which this application was made were to be utilized toward discharge of the mortgage, but it transpires in the course of discussions as to the form of the order that that evidently was not so because the property has been sold. This is an ex parte application, and to grant a Mareva injunction requires, as the Vice President has emphasized, solid evidence upon which to conclude a real risk that assets will be dissipated. I do not think that there is such evidence and I agree that the application should, in the event, be dismissed.

Hon Le Pichon JA :

19. I, too, was under the impression that the monies were required to repay the bank and I had not appreciated that the property had been sold. For the reasons given by the Vice President and Stock JA, I, too, would not make the order granting an injunction. It is a draconian remedy and in the absence of sufficient and solid evidence, it is not a remedy that should be granted.