XCHRX MAK YUK LIN AND ANOTHER v. WONG KIU NGOR and MAK YUK LIN AND OTHERS (Intended Third Parties)

HCA 1590/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1590 OF 1998

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REASONS FOR DECISION

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1. This is an application by the Defendant to restrain the Plaintiffs and their assignees from disposing of certain properties originally held by the Plaintiffs, but assigned to the assignees shortly after an order was made by Godfrey J. which order was, in fact, an order for judgment against the Plaintiffs in favour of the Defendant for the sum of HK$6 million. It is perhaps necessary to briefly set out the background of this case.

2. In June 1997, the Defendant agreed to purchase a shop premises from the first named Plaintiff for HK$24 million and a deposit of HK$6 million was paid. The shop premises was in fact purchased by the second named Plaintiff under an earlier sub-sale and the first named Plaintiff did not have any interest in the said shop premises. There was a dispute between the Plaintiffs and the Defendant and the transaction fell through. It was subsequently adjudicated by the court that the Defendant should be entitled to the return of the HK$6 million deposit. In connection with that dispute, the only remaining issue is whether the first named Plaintiff or the second named Plaintiff, or both of them are liable for the repayment of the deposit of HK$6 million to the Defendant.

3. It is the Defendant's case that shortly after the adverse order made against the Plaintiffs, the Plaintiffs started to dispose of their assets. An ex parte Mareva injunction was obtained against the Plaintiffs to restrain them from the disposal of their assets. The alleged nominees are in fact four companies, namely Eternal Wide Ltd., Stockwell Trading Ltd., Rich Grace Ltd., and Grant Profit Investment Ltd. The ex parte injunction order does not affect Grant Profit Investment Ltd., and that part of the inter parte application had to be adjourned to enable the Grant Profit Investment Ltd adequate time to respond to the Defendant's allegation.

4. As between these four nominee companies, they have acquired from the Plaintiffs a total of five properties - properties A to E for the total consideration of about $30 million. Eternal Wide Ltd. purported to acquire A property for $8 million, Stockwell Trading Ltd. purported to acquire B property for $3.95 million. Rich Grace Ltd. purported to acquire D property for $30,300,000.00 and Grant Profit Investment Ltd. purported to acquire the E and F properties for the sums of $2 million and $1.5 million respectively.

5. There is a suggestion that the directors of this four alleged nominee companies are all related to the first named Plaintiff. The Defendant suggests that the alleged nominee companies hold the legal title of the properties on trust for the Plaintiffs. Alternatively, it is suggested that the transactions between these nominee companies and the Plaintiffs are violable under section 60 of the Conveyancing and Property Ordinance on the basis that the disposition of the properties was made with the intention to default the Defendant who is a creditor of the Plaintiffs.

6. On the other hand, the Plaintiffs and the nominee companies suggested that the transactions are genuine sales of those properties necessitated by the financial difficulty that the first named Plaintiff faced at the material time. Eternal Wide Ltd., Stockwell Trading Ltd., and Rich Grace Ltd. seek to discharge the injunction order as intervenors. The Defendant sought to bring in the four alleged nominee companies as third parties by way of a third party notice.

7. Counsel for Stockwell and Rich Grace, Mr. Chiu, suggested that the use of shelf company to purchase property is not uncommon in Hong Kong and the evidence adduced by the Defendant does not support the allegation of the alleged close relationship between the directors of Stockwell and Rich Grace and the first named Plaintiff. Mr. Chiu also suggests that the properties were in fact sold at prices which are within the reasonable price ranges of the properties, bearing in mind, that the sales in question can be described as a forced sale in the light of the financial difficulty of the Plaintiffs and the conditions of the markets at the material time.

8. Mr. Chan of the Eternal Wide Ltd. also suggests that the sale of the A property by the Plaintiffs to Eternal Wide was in fact a genuine property transaction.

9. At this stage of the proceedings and bearing in mind the nature of the dispute and the issues that have to be solved, it will neither be necessary nor desirable for the court to make a decision as to the dispute of facts.

10. So far as the A property acquired by Eternal Wide is concerned, one can describe the transaction to be rather peculiar in that the first named Plaintiff firstly sold the property to another person by the named of Lin on 24th September 1998, for just over HK$5 million and then there was a sub-sale of this property to Eternal Wide, the very next day on 25th September 1998 at a price of HK$8 million. There is, of course, the suggestion by the Defendant that the market price of this property at the time of the transaction was almost three times the consideration given by Eternal and over four times the consideration received by the first named Plaintiff from Lin. This evidence, in my view, clearly supports a strong arguable case that the transaction pertaining to this A property may not be a genuine one.

11. I have considered the background of this case and counsel's submissions. I am satisfied that there are indications of a close association between the Eternal Wide and the first name Plaintiff. I bear in mind also the timing of the transaction and the alleged gross undervalue that the first named Plaintiff received in respect of the property. I am satisfied that there is indeed strong arguable case demonstrated by the Defendant that this property transaction between the first named Plaintiff and the associated parties including Lin and Eternal Wide was in fact tainted with irregularities and that enquiry should be made to determine if Eternal Wide is just a nominee company holding the property in trust for the Plaintiff.

12. There is, in my view, also a good arguable case that this transaction can be avoided, particularly in the absence of positive evidence from Eternal Wide pertaining to the payment of the purchase price to the Plaintiff. In so far as the dispute between the Defendant, Plaintiffs and Eternal Wide is concerned, I am satisfied not only that the Defendant had demonstrated a strong arguable case, the balance of convenience also lies clearly in favour of the Defendant against the Plaintiffs and Eternal Wide.

13. As for the other properties, namely, the B property acquired the Stockwell Trading and the D property acquired by Rich Grace Ltd. are concerned, the situation is slightly different.

14. On the evidence, I am not satisfied that there are sufficient evidence to demonstrate a strong arguable case that the transaction involving the B property was a sham one. On the evidence, I am satisfied that there had been adequate evidence to show that the purchase price in respect of this property had been paid by Stockwell Trading Ltd.

15. As for the property D for which Rich Grace Ltd. paid the deposit of HK$2 million, it appears that according to the proposed agreement between Rich Grace and the second named Plaintiff, after the initial deposit had been paid, the contract is not to be completed until 30th August 2000.

16. In view of the history and the background, in view of my earlier finding that there is a strong arguable case that in attempting to dispose of this property, the Plaintiffs were in fact trying to evade the liability towards the Defendant. I am not satisfied that this particular transaction between the Plaintiffs and Rich Grace Ltd. should be allowed to proceed to completion at this stage. It may be that more satisfactory arrangement may have to make governing the further progress of that particular transaction at a later stage and for that I grant the parties liberty to apply.

17. At the moment, in the light of the fact that completion is not to take place until 30th August 2000, I do not propose to make any specific order pertaining to that particular transaction. It may be feasible that subject to the payment of the balance of the purchase price by Rich Grace upon the discharge of the mortgage in question that the court may give direction so as to enable Rich Grace to complete the transaction in question. But in the light of the various unknown factors pertaining, particularly to the outstanding mortgage payment due to the bank, it will not be appropriate for me to make any specific order with regard to that particular matters.

18. As for the application for the Defendant to fortify the undertaking as to damages, I do not propose to make any order at this stage.

19. On the summons taken out by the Defendant, I make an order in terms with certain amendment so that the reference to Stockwell Trading Ltd. and Grant Profit Investment Ltd. in paragraph 1 will be deleted and so are sub-paragraphs 1(b), (d) and (e), that is the reference to the B, E and F property.

20. On the Defendant's summon for Third Party Direction, I do not propose to make any order. The Defendant should start a new action for whatever reliefs he wants.