1638 LTD v. POWER CYCLES LTD

LDBM35/2006

 IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BUILDING MANAGEMENT APPLICATION  NO. LDBM 35 OF 2006

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J U D G M E N T

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1. This is an application for injunctive relief pursuant to the court order made by Member Lo in these proceedings on 18 August 2006.  On that day the Applicant’s claim against the Respondent was dismissed and the tribunal ordered the Applicant to pay the Respondent’s costs and such costs to be taxed if not agreed.  There is no appeal against that order.

2. The Respondent has prepared a bill for the cost of these proceedings and it runs up to the figure of $354,647.33. 

3. Taxation proceedings were commenced and the Applicant responded by a list of objections.  According to the Applicant, the cost should be $270,000-odd.  The taxation hearing is now fixed to be heard on 1 March this year before Master Hui.

4. In the meantime, the Applicant entered into an agreement to sell its property, which is the only asset of the Applicant known to the Respondent.  The provisional agreement for sale and purchase was made on 9 November 2006.  According to the terms of the agreement completion was to take place on 9 March this year.

5. Having learnt about this sale, the Respondent was understandably concerned and had approached the Applicant.  There were correspondence between solicitors to see whether there could be some arrangement in place so that the Applicant’s liability for costs will be somehow provided for in the sale proceeds.  The Applicant refused to give any undertaking and asserted that there is no risk of dissipation of assets.

6. On 15 January 2007 the representative of the Respondent spoke with a Mr Cheung who had given evidence for the Applicant as an authorised representative of the Applicant in the course of the trial.  Mr Cheung was also a partner in the tenant of the premises.  The sale of property is subject to that tenancy.

7. The evidence before me shows a close association between Mr Cheung and a director of the Applicant, Madam Kwok.  They share the same residential address and, more importantly, Mr Cheung together with Madam Kwok were the borrowers under a mortgage of the Applicant’s property.  Although Madam Kwok tried to explain in her affirmation that this arrangement with the bank is at the bank’s request, she did not go into any explanation as to how she came to share the same residential address with Mr Cheung, nor did she explain why Mr Cheung, if he is just a mere tenant and has no other relationship with the Applicant, why was he willing to act as a borrower under the mortgage and thereby attract potential liability to repay the loan upon the default of the Applicant.

8. Going back to this conversation between the representative of the Respondent and Mr Cheung on 15 January, according to the affirmation of Mr Wan, the Respondent was informed by Mr Cheung that completion of the sale of property would be expedited and was due to take place in early February 2007.  The conversation was in the context where the Respondent was trying to see whether its concern on the dissipation of the assets by the Applicant in terms of the sale of property would be addressed.  Naturally, when Mr Wan was told about the expedition of completion the concern of the Applicant escalated.  At the same time, there is no constructive proposal from the Applicant with regard to the discharge of its liability as to costs.

9. Having sought legal advice, the Respondent took out an ex parte application for Mareva injunctive relief before me on 29 January.  Having read the paper and heard submissions from counsel, I considered this is not a proper case for ex parte application.  I therefore adjourned the matter to 30 January for an inter partes hearing.  The Applicant was served with the papers of the inter partes application.  Amongst the papers is an interlocutory application summonsing the Applicant to appear on 30 January 2007. 

10. In the circumstances, it should have been clear to everybody involved that the hearing on 30 January 2007 was an inter partes hearing.  The Applicant chose not to attend and this court granted an injunction on that day.  The injunction is confined to the property or the proceeds of the property to the extent of $300,000.  It was worded in such a way so as to ensure that the injunction would not prevent the completion of the sale provided that 300,000 out of the net proceeds of the sale shall be stakeheld.

11. Today is the return day of the injunction.  The Respondent asked for the continuation of the injunction.  On the other hand, Mr Chong, appearing for the Applicant, seeks a discharge of the injunction.  Two grounds were advanced by Mr Chong.  The first is based on material non-disclosure.  In my judgment, this is a non-starter.  As I have said, the hearing on 30 January 2007 was an inter partes hearing.  The fact that the Applicant chose not to attend does not turn that into an ex parte application.  The purpose of this court adjourning the matter on the 29th for inter partes hearing on 30 January was to give the Applicant an opportunity to address the court and to put forward whatever matters the Applicant considered to be relevant on the question as regard whether injunction should be granted.

12. Having had that opportunity but failed to utilise it, it does not lie in the Applicant’s mouth now to say that the order was granted on an ex parte basis.  In other words, the Applicant had the opportunity to correct whatever they said to be mistakes in the evidence of the Respondent and they failed to do so.  In this regard, it was said in the affirmation filed on behalf of the Applicant that the attitude of the Applicant on 30 January was that they would wait and see whether an injunction would be granted  before they decide whether to respond to it.  Let me say now in clearest terms that this is not the right attitude.  If the Applicant has been so advised, then they are wrongly advised.

13. In this sort of situations, the court expects a party in the position of the Applicant to come forward to resist the injunction if they have good reasons to do so.  Their failure to turn up, even though it is at short notice and they may need more time to put in evidence, would not speak well for them.  There is no reason why the Applicant could not appear on 30 January, either in person or through solicitors, to highlight matters to the court and give reasons to resist the application for injunction.  The court, or rather the tribunal in this instance, is entitled to take into account the failure of the Applicant to appear in deciding whether to grant the relief to the Respondent.

14. Since it is an inter partes application, the obligation on the part of the Respondent to give full and frank disclosure at ex parte stage no longer applies.  Further, having considered the matters alleged to be material, which the Applicant said the Respondent failed to disclose, I am of the view that there is no substance in the allegations of material non-disclosures in any event.

15. On the question of the expedition of the sale, Mr Chong suggests that the solicitors for the Respondent should make further inquiries before they come to court. I do not agree. I have already referred to the evidence relating to the association between Mr Cheung and the Applicant.  Having got that information from the mouth of a representative who for all intents and purposes can be regarded as a representative of the Applicant in the present context, I do not see why further inquiry is necessary.  One must appreciate that this sort of applications has to be proceeded with a certain degree of urgency in order to be effective.  The Respondent had to proceed promptly. 

16. Therefore, I reject the submission that the solicitors for the Respondent should make further inquiries before putting forward this piece of evidence about the expedition of the completion. 

17. Then it is said that the Respondent failed to exhibit to this court a letter from the solicitor for the Applicant concerning the taxation hearing.  I do not see much significance in that letter.  The risk of dissipation that this court relied upon in granting the relief had nothing to do with the taxation proceedings.

18. The other ground relied upon by Mr Chong to ask for a discharge of the injunction is the lack of risk of dissipation.  According to the evidence now before me, the completion will not be expedited and, in fact, there is a request from the solicitors for the purchaser asking for postponement of completion until the end of March.  Of course, this is not information that was known to the Respondent.  This is the sort of information that this tribunal would expect the Applicant to come forward and to inform the tribunal about the same at the hearing on 30 January 2007.  Unfortunately, the Applicant chose not to attend that hearing. 

19. Therefore, this piece of information cannot be relied upon in deciding whether an injunction should have been granted on 30 January.  On the other hand, this piece of information is relevant with regard to the continuation of the injunction.  If this court is satisfied now that there is no longer any risk of dissipation, the injunction should not be continued.  But does the fact that the completion is to take place either on 9 March or maybe at the end of March take away the risk of dissipation? 

20. In my judgment, before answering that question I have to take into account of the Applicant’s conduct in these matters; in particular, it is now beyond dispute that the Applicant had indeed made a request for early completion although that request was rejected by the purchaser.  This is evidenced by a letter from the solicitors for the purchaser, dated 5 February 2007, exhibited as KYH2 in the affirmation of Madam Kwok.

21. Instead of explaining to this court why such a request was made, Miss Kwok in her affirmation sought to downplay the significance of the information from Mr Cheung.  In paragraphs 16 to 18 of her affirmation, Miss Kwok tried to build up a case that Mr Cheung was not the authorised representative of the Applicant in dealing with Mr Wan and no reliance can be placed on his statement that the completion has been advanced.  She said nothing about the reason behind the Applicant’s request for advanced completion.  If the Applicant has a good reason for making such a request in the first place, again.  I would expect that to be set out in the affirmation filed on behalf of the Applicant.

22. Bearing in mind the exchange between the solicitors in correspondence on the topic and the timing of the sale of the property, I must say that the way the Applicant handled the matter has created a justifiable concern that the Applicant may intend to dissipate the proceeds of sale in order to defeat the claims of the Respondent with regard to costs.

23. Another matter which caused me concern is the assertion by the Applicant that one of the purposes of the sale of the property was to generate funds to pay the Respondent with regard to the liability for costs.  If that were so, I fail to understand why the Applicant cannot come to some suitable arrangement with regard to the sale proceeds in order to address the concern of the Respondent.  In fact, I fail to understand why the Applicant has to come here this afternoon to seek a discharge of the injunction and in doing so, the Applicant has to incur a lot of cost.

24. Mr Chong submits that even though there may not be any hardship to the Applicant if the injunction were to continue, that should not be done if there is no risk of dissipation.  I agree.  I have said a number of times that the purpose of Mareva injunction, or an injunction in a more limited scope as the one that I have granted in the present case, is not to elevate someone in the position of the Respondent to that of a secured creditor.  However, if this court is satisfied that there is a risk of dissipation to defeat the claim of the Respondent, it is this court’s duty to grant the appropriate relief to protect the Respondent.

25. By reason of the manner in which the Applicant conducted itself in these proceedings, in particular as related to the sale of the property and in dealing with the Respondent throughout, including how the Applicant conducted its case before this tribunal this afternoon, there is sufficient evidence to justify an inference that the Applicant cannot be trusted.  There is a risk that the Applicant would not use the proceeds of sale for the discharge of its liability for costs.  There is, I am satisfied, a risk that the Applicant may dissipate such proceeds without regard to the interests of the Respondent.

26. It would have been different if the Applicant came forward and told this court frankly and candidly why they wish to push forward the sale in January and why they chose to take such a rather unco-operative approach in dealing with the sale proceeds in the correspondence with the other side.  Alternatively, the Applicant may point to other assets of the Applicant that would still be available or give some disclosure of its bank account.  But none of this has been done.

27. In the circumstances, I conclude that there is a risk of dissipation which would justify some injunctive relief in order to protect the Respondent.  I therefore dismiss the application to discharge the injunction and would continue the injunction on the present terms. 

28. In coming to this conclusion I have not overlooked the fact that the taxation hearing is on 1 March and the scheduled completion is on 9 March.  The Respondent may be able to obtain some sort of charging order or garnishee order to protect itself within the time gap but I do not know whether that can actually be done within the time available.  Further, here is no guarantee that the taxation hearing on 1 March would end up with a decision on the same date. 

29. Bearing in mind the conclusion I reached about the unreliability of the Applicant, I think it is in order for injunctive relief to be granted at this stage and this is the order I make.

(Submissions by counsel)

30. In the circumstances of the present case, I consider that it is just to make an order for interim payment of costs of the present application.  Having considered the skeleton bill submitted by the Respondent and having considered the submissions of Mr Chong on behalf of the Applicant, I will make an order pursuant to Order 62, Rule 9A for interim payment of costs forthwith in the sum of $150,000.  At the same time I will also make an order that the Applicant shall pay the Respondent’s costs of this application excluding the costs of 29 January and such costs are to be taxed if not agreed.  It means that the parties are at liberty to go for taxation if they think the figure of $150,000 is not the correct figure but they will have to take the consequences in terms of the outcome if they were not successful, as provided for under Order 62, Rule 9A.

(Submissions by counsel)

31. The injunction shall remain at the figure of $300,000 and it will continue until the Applicant satisfies its liability for costs pursuant to the order of Member Lo.  That only deals with the costs up to the end of the proceedings before Member Lo.  As far as the costs of this application is concerned it is not covered by the scope of the injunction.