ICICI BANK LTD v. DIAMART LTD AND OTHERS

HCA 618/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 618 OF 2014

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(Heard Together)

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D E C I S I O N

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Applications before the court

1. On 10 June 2014, Diamart Limited (“Diamart”), the 1^st Defendant in HCA 618/2014 and the 2^nd Defendant in HCMP 1096/2014, paid into court the sum of US$2,563,295 in settlement of the whole of the claims of (i) ICICI Bank Limited (“the Bank”), the Plaintiff in HCA 618/2014, and (ii) the Bank and the Joint and Several Receivers of Diamart Limited (Osman Mohanned Arab and Wong Kwok Kei) (“the Joint Receivers”), the 1^st and 2^nd Plaintiffs respectively in HCMP 1096/2014, against it by way of sanctioned payment pursuant to Order 22, rule 3(2) of the Rules of the High Court.  In what follows, references to rules shall, unless otherwise expressly indicated, be references to the rules under Order 22 of the Rules of the High Court.

2. By a summons dated 18 June 2014 taken out in HCA 618/2014 and HCMP 1096/2014, Diamart applied for leave to withdraw the sanctioned payment under rule 10(1).

3. By a summons dated 24 June 2014 taken out in HCA 618/2014, the Bank applied for leave to accept the sanctioned payment under rules 10(2) and 18.

4. By another summons dated 24 June 2014 taken out HCMP 1096/2014, the Bank and the Joint Receivers applied for leave to accept the sanctioned payment under rules 10(2) and 18.

5. This is the court’s decision in respect of the aforesaid three summonses.

Background facts

6. The Bank is a bank carrying on business in Hong Kong under the Banking Ordinance, Cap 155.

7. Diamart is a company incorporated in Hong Kong and has been a customer of the Bank since no later than 2007.  Diamart has a place of business at Flat 1724, 17^th Floor, Star House, 3 Salisbury Road, Tsimshatsui, Kowloon (“the Star House Premises”).

8. The 2^nd Defendant (“4C’s”), the 1^st Intervener and the 2^nd Intervener in HCMP 1096/2014 also carry on their respective businesses at the Star House Premises.  It is their contention that some of the chattels located or kept in the Star House Premises belonged to them and not to Diamart.

9. The Joint Receivers are appointed by the Bank pursuant to a debenture made between the Bank and Diamart dated 25 August 2008 (“the Debenture”) over all the undertaking, property, assets and rights of Diamart charged in favour of the Bank pursuant to the Debenture (“the Secured Assets”).

10. In HCA 618/2014, the Bank’s claim against Diamart is for the repayment of the principal sum of US$2,490,000 (together with contractual interest thereon) advanced by the Bank to Diamart pursuant to a facility letter dated 14 September 2012 as amended by an amendatory facility letter dated 27 March 2013.

11. In HCMP 1096/2014, the Bank and the Joint Receivers’ claims against 4C’s and Diamart are for, inter alia, an injunction to restrain them from disposing of or otherwise dealing with all or any of the Secured Assets, including the property or assets in the form of chattels (including, but not limited to, diamonds and/or gems and/or other precious stones) located or kept in the Star House Premises, unless with the knowledge, consent and authority of the Joint Receivers.

12. By reason of the 1^st and 2^nd Interveners’ contention that some of some of the chattels located or kept in the Star House Premises belonged to them and not to Diamart, they applied to be joined as parties to the proceedings in HCMP 1096/2014.

13. On 14 May 2014, Anthony Chan J granted leave to the 1^st and 2^nd Interveners to be joined as parties to the proceedings in HCMP 1096/2014, and further granted an interlocutory injunction to restrain 4C’s, the 1^st Intervener and the 2^nd Intervener, until trial or further order, from (inter alia) (i) taking possession, disposing of or otherwise dealing with or in all or any of the undertaking, property, assets and rights of Diamart charged in favour of the Bank, and (ii) without prejudice to the foregoing, taking possession, disposing of or otherwise dealing with or in all or any of the property or assets in the form of chattels (including, but not limited to, diamonds and/or gems and/or other precious stones) located or kept in the Star House Premises.

14. The order of Anthony Chan J also provided for the parties to prepare an agreed list of chattels of which ownership is disputed, such agreed list to be in the form of a Scott Schedule, in order to facilitate the resolution of the disputes regarding the ownership of those chattels.  I understand that the Scott Schedule has not yet been prepared up to the date hereof.

15. According to the 2^nd Intervener, in order to obtain a quick release of the chattels belonging to the different parties located or kept in the Star House Premises, 4C’s decided to, and did, provide the sum of US$2,563,295 to enable Diamart to make the sanctioned payment on 10 June 2014.

16. However, on 12 June 2014, ICICI Bank UK PLC (“ICICI UK”), an associated company of the Bank, issued proceedings in Hong Kong, namely, HCMP 1445/2014, against 4C’s and the 2^nd Intervener seeking (inter alia) an injunction to restrain them from disposing of the chattels belonging to them located or kept in the Star House Premises.  The injunction was sought in aid of foreign proceedings, commenced or to be commenced, by ICICI UK against 4C’s and the 2^nd Intervener in the Commercial Court of Antwerp, Belgium, pursuant to the terms of a Receivable Pledge Agreement between ICICI UK and Diminco NV (a Belgium company associated with Diamart) dated 15 December 2006.

17. For the present purposes, it is not necessary for me to examine the nature or validity of ICICI UK’s claims against 4C’s and the 2^nd Intervener, suffice it for me to mention that on 12 June 2014, Sakhrani J granted an interim injunction against 4C’s and the 2^nd Intervener in HCMP 1445/2014 to restrain each of them from (inter alia) in any way disposing of or dealing with or diminishing the value of any of its/his assets within Hong Kong, up to a curtain specified value, including in particular the following:

“the business inventory of [4C’s/the 2^nd Intervener] held at [the Star House Premises] comprising jewellery, polished diamonds, rough diamonds, loose precious stones, ingots of silver, gold and palladium, mounts of silver, gold and palladium and rejected/broken jewellery, or the sale proceeds if any of the inventory has been sold”.

18. According to Diamart, the effect of the fresh proceedings in HCMP 1445/2014, and the interim relief sought and obtained by ICICI UK in those proceedings, wholly frustrated the underlying purpose of the sanctioned payment made by Diamart, namely, to obtain a quick release of the chattels belonging to the different parties located or kept in the Star House Premises.  Accordingly, there has been a material change of circumstances since the date of the payment into court justifying Diamart’s application for leave to withdraw the sanctioned payment.  Further, it is contended by Diamart that it would be manifestly unfair, in the circumstances, to Diamart as well as 4C’s and the Interveners. to permit the Bank to take advantage of the sanctioned payment.

Applicable principles

19. Under rule 10(1), a sanctioned payment may not be withdrawn or diminished before the expiry of 28 days from the date the sanctioned payment is made unless the court grants leave to withdraw or diminish it.

20. Under rule 10(2), if there is subsisting an application to withdraw or diminish a sanctioned payment, the sanctioned payment may not be accepted unless the court grants leave to accept it.

21. Under rule 14(1), subject to rule 10(2), a plaintiff may accept a sanctioned payment made not less than 28 days before the commencement of the trial without requiring the leave of the court if he files with the court and serves on the defendant a written notice of acceptance not later than 28 days after the payment was made.

22. Rule 18 applies where the plaintiff wishes to accept a sanctioned payment made by one or more, but not all, of a number of defendants.

23. Rule 18(4) provides that in all cases other than where (i) the defendants are sued jointly or in the alternative, or (ii) the defendants have a several liability to him, the plaintiff shall apply to the court for an order permitting a payment out to him of any sum in court, and such order as to costs as the court considers appropriate.  Mr Anson Wong SC (for the Bank) confirms that rule 18(4) is applicable in the present case.

24. Accordingly, it is clear that Diamart requires the court’s leave to withdraw, and the Bank requires the court’s leave to accept, the sanctioned payment in the present case.

25. In either situation, the court has a discretion whether to grant leave to withdraw, or accept, the sanctioned payment.  As regards the principles for the exercise of this discretion, my attention has been drawn to the judgment of Bharwaney J in Rai v Pacific Construction (HK) Co Ltd [2011] 3 HKLRD 469, where the learned judge stated the following:

“32. … the discretion of the court in this type of application is very wide and that it should be exercised as widely as possible so as to advance the overriding objective to do justice to the parties concerned. It is inappropriate to attempt to give an exhaustive list of all relevant factors to be taken into account. The relevant factors must vary from case to case. In considering these factors, the court must not lose sight of the fact that the object of O.22 is to promote settlements, save costs, and avoid the uncertainties of litigation. In a Judiciary Press Release dated 3 March 2004, Ribeiro PJ, Deputy Chairman of the Working Party on CJR stated that ‘the major recommendations of the Working Party include... encouraging earlier, fair settlements...’ and that ‘the rules should be interpreted and applied with a view to increasing cost-effectiveness of the procedures in question... facilitating settlement and achieving a fair distribution of the court’s limited resources among its users.’

33. The main criterion must be whether there has been such a change of circumstances as would render it unjust to allow the offeree to benefit from the offer...”

26. More recently, in Polyever Holdings Ltd v Savills (Hong Kong) Ltd, HCA 1039/2010 (30 June 2014), at paragraph 17, Anthony Chan J set out the following principles regarding the exercise of the court’s discretion in this area, as follows:

(1) The discretion of the court is unfettered;

(2) Such discretion is be exercised judicially;

(3) The main criterion is whether there has been a change of circumstances as would render it unjust to allow the offeree to benefit from the sanctioned offer/payment.  For instance, the discovery of further evidence, which puts a wholly different complexion on the case, or a change in the legal outlook brought about by new judicial decision;

(4) Delay in making the application is a relevant consideration;

(5) The substantiality of the offer to accept is a relevant consideration;

(6) The conduct of the applicant is a relevant consideration;

(7) The court will not, in the interlocutory application, conduct a mini‑trial of the issues raised;

(8) After taking into account all the relevant factors, the court will be guided by the overriding consideration to do justice between the parties.

27. I also accept the submissions of Ms Janine Cheung (for Diamart) that the court’s consideration is not necessarily restricted to the position of the parties immediately before the court, but in an appropriate case the court may take into account wider interests of third parties.  For example, in Peal Furniture Co Ltd v Adrian Share (Interiors) Ltd [1977] 1 WLR 464, the English Court of Appeal took into account the possibility that the defendant might have been insolvent and thus the plaintiff might be given a preference over the general body of creditors if it were to obtain satisfaction of the judgment which it might obtain in the proceedings against the defendant out of money paid into court by the defendant.  In other words, the court in that case exercised its discretion to give effect to a well established principle of insolvency law, namely, the pari passu principle in an insolvency situation.  However, it remains true that in most cases relating to the court’s exercise of its discretion whether to grant leave to accept, or withdraw, a sanctioned payment under rule 10, the court will primarily be concerned with the position of the parties before the court.

Discussion

28. This is not the usual case where, because of the discovery of further evidence or a change in the legal outlook brought about by some new judicial decision, Diamart’s prospect of success in defending the Bank’s case has substantially changed.  What is being said is that, in view of the action taken by a third party, albeit related to the Bank, the underlying purpose of making the sanctioned payment has been frustrated, and thus there has been a material change of circumstances.

29. It is important to note that the subject matter of ICICI UK’s claim against 4C’s and the 2^nd Intervener in HCMP 1445/2014 is entirely different and separate from that of the Bank’s claim against Diamart. Whether ICICI UK is entitled to maintain the injunctive relief which it has obtained against the chattels located or kept in the Star House Premises is a matter which will have to be argued in those proceedings.

30. While I accept, on the evidence, that the Bank might well have been aware that one of the reasons for Diamart making the sanctioned payment was to obtain a release of the chattels located or kept in the Star House Premises, legally speaking the payment is made in settlement of the Bank’s claim against Diamart only, and if the payment is accepted by the Bank, only the Bank’s claim against Diamart would be settled.

31. When 4C’s decided to fund Diamart’s payment into court, it must, or ought to, have appreciated the risk that the payment might be accepted by the Bank, with no guarantee that its underlying purpose of securing a quick release of the chattels located or kept in the Star House Premises would be achieved.

32. Moreover, although it is said that the primary purpose of the payment into court was to secure a quick release of the chattels located or kept in the Star House Premises, it cannot seriously be argued that it was not also made for the purpose of settling the Bank’s claim against Diamart, or that it was made without any assessment of the merits of the Bank’s claim against Diamart.

33. On the other hand, permitting the Bank to accept the sanctioned payment would obviously further the objectives of Order 22, namely, promoting early settlements, saving costs, achieving a fair distribution of the court’s scarce resources, and avoiding the uncertainties of litigation, all referred to at paragraph 14 of the judgment of Anthony Chan J in Polyever Holdings Ltd v Savills (Hong Kong) Ltd.  I am also unable to see that it would be unfair or unjust to Diamart, or 4C’s or the Interveners, to permit the Bank to take advantage of the sanctioned payment in the circumstances of the present case.

Disposition

34. In all the circumstances, it seems to me plainly right to grant leave to the Bank to accept the sanctioned payment.  I shall therefore grant an order in favour of the Bank in the two summonses which it took out on 24 June 2014, and dismiss Diamart’s summons of 18 June 2014.  I shall hear the parties on the question of costs.