LAM KIN MING AND ANOTHER v. TONY WONG CHUN LOONG AND OTHERS

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JUDGMENT

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Hunter, JA :

1. On 7th May Mortimer J dismissed an application made by Tony Wong the first defendant for an injunction restraining the 2nd defendant James Capel (Far East) Limited, pending suit, from executing an assignment of 110 million shares in Jademan (Holdings) Limited in favour of the 9th defendant Tony Zie. From that decision Mr Wong appeals and now seeks a temporary order of the sort which he failed to obtain before Mortimer J pending the hearing of his appeal.

2. The principle which I have to apply was best expressed by Cotton LJ in Polini v Gray [1879] 12 Ch 438 when in the context of an appeal from the Court of Appeal to the House of Lords he said this : -

"... if there is a reasonable ground of appeal, and if not making the order to stay the execution of the decree or the distribution of the fund would make the appeal nugatory, that is to say, would deprive the appellant, if successful, of the results of the appeal, then it is the duty of the court to interfere and suspend the right of the party who, so far as the litigation has gone, has established his rights."

3. In this case of course no one has established any rights at all so that the position is perhaps clearer. The principle seems to me to be this. If by denying relief the appeal is rendered nugatory, then if there is a reasonable ground of appeal the court should hold the status quo pending the hearing of that appeal.

4. Now three issues have been raised between the parties in what is a complicated action started on a totally different basis. Various matters have been engrafted on to it. The three issues identified by the judge are these : -

5. Having regard to the weight of evidence on the facts I am not very impressed by the arguability of the second point. It is the two points of law, one and three, round which the debate turns.

6. I need say very little about the history which is long and convoluted. As far as James Capel is concerned, it goes back to January 1988 when acting as the only true financier of all parties in this case, they took a mortgage on the shares by a memorandum of deposit to secure an indebtedness of Tony Wong to them of over $90 million. By August 1989 the indebtedness had been reduced to $55 million. The position had become extremely complicated. From that moment onwards a lot of other people became interested in the shares. It had very little to do financing. It had everything to do with securing the control of Jademan. Alliances were formed, split and reformed with surprising frequency from the view point of the outsider. The present round is a personal contest between Wong and Zie. It arises in this way.

7. At about l o'clock on 20th April Wong tendered to James Capel a banker's draft for a sum exceeding $55 million, the money being provided by his current backer, Arbus, for the purpose of redeeming the mortgage of those shares he had created by a memorandum of deposit dated 10th August 1989. That tender was rejected. It was rejected because between 9 and 10 o'clock that self-same morning, an oral agreement to assign made between Capel and Zie became unconditional with the assent of the HongKong Bank. The agreement had been made the previous evening when Capels accepted a written offer by Zie to pay to them the self-same $55 million qua guarantor, to discharge his obligation as guarantor of a co-debtor of this sum of Mr Lam to James Capel.

8. Two questions of law seem to me to arise out of that scenario. The first is: does Wong's tender arguably give him an accrued right to redeem, and these are the important words, enforceable as against James Capel? The second question turns on priority, and is: which of the two equities in Wong and Zie prevail, Wong's equity of redemption or Zie's equity arising from the making of the oral agreement? If Mr Zie is right his equity prevails because it arises as against James Capel when on the previous evening or first thing that morning the agreement was made, and it is pre-tender and therefore defeats Wong's tender at 1 o'clock? If Wong is right, he says that, that equity may affect Capel, but it does not affect him without notice. When he tendered he had no such notice. I confess that this common lawyer has little difficulty in concluding that the question of priority one way and the other is arguable.

9. Therefore I come back to the first question which seems to me decisive in two respects: first as to whether or not this appeal would be rendered nugatory if interim relief was denied; secondly, on the validity or arguability of the main reason the judge gave when refusing relief. He summarised his first ground in two brief passages in his judgment. The first, on page 5, he says : -

"In my judgment it (ie the injunction) is not necessary to protect the rights of the parties and it is not warranted on a balance of convenience."

When he deals with the position of Tony Wong he says : -

"His right against the assignee is exactly the same as against the assignor; if he has the right to redeem against the assignor he has also the right to redeem against the assignee. If his right against the assignor has already accrued, it remains accrued. So the transfer of the mortgage will not vary or alter Tong Wong's legal or equitable rights in any way against either James Capel or against Tony Zie, the new mortgagee."

10. The difficulty arises there in respect of the last sentence which is not right if Mr Tang's case presented on behalf of Wong is arguably correct. The first part is not in issue. As a general proposition, assignee and assignor are in the same position. That general proposition does not touch the vital question as to what happens post tender without notice. If arguably post tender without notice, Wong has a right which is enforceable as against James Capel, it is plain that that is lost if the assignment takes place and that his legal and equitable rights against James Capel will be affected by that assignment. It may not be the complete answer to that to say that you have got a substituted right now against Zie if you tender again. To say as the judge said, there is no alteration of rights against one, is not the same thing as saying that you have got a perfectly acceptable substitute right against the other. The judge was not expressing that view at all.

11. James Capel argues that that reading of that sentence is too narrow. The judge was in fact perfectly right. There is no alteration in the rights against James Capel and no loss at all because Wong has no such right. That conclusion is comprehended by the judge's language. I am bound to say I do not get that very clearly from it. Capel's argument goes like this. The right to redeem is a right against the security, not against any particular individual. A mortgagee has an unconditional right to assign. The mortgagor has no right to redeem . against any particular mortgagee. Tong Wong's position as against Zie is identical to that as against Capel and he cannot complain or intervene.

12. I confess that I approach this problem with considerable hesitancy and apprehension. I have very slender experience indeed of the law of mortgages, and no authority has been put before me bearing upon the point.

13. But I start, I must confess, with serious conceptual difficulties about a floating remedy which is not a remedy in rem, which attaches to the security and not to the individual or the personality of the mortgagee. If it is not a remedy in rem, my simple mind tells me it has to be remedy in personam and that affects the individual. I tried to test the matter with Mr Kotewall by inviting him to comment upon what he suggests the position would be if the sequence of events was altered so that in this case, the tender had come at 9 o'clock in the morning and the agreement had become unconditional at 1 o'clock. The tender would then be complete before the agreement to assign was made at all. He was minded then to concede that that was a case where the mortgagor could complain and stop the mortgagee from executing that agreement. If that be right, this to my mind shows that it is at least very arguable this is a right in personam and which then attaches in favour of the mortgagor against the mortgagee. If it attaches in those circumstances, then the split position here, where the tender takes places post agreement but without notice, must likewise be arguable for the self-same reason. So with considerable doubt and hesitation, because I find the problem difficult, I have come to the conclusion that it is arguable first that Tony Wong has a right of redemption by reason of the tender enforceable against James Capel; and secondly, he has got an argument on this nice question of priority between himself and Mr Zie. It follows from that if this assignment now takes place, de facto he loses both arguments and the appeal becomes nugatory.

14. I now go on to consider the other points which to my mind are subsidiary following that major conclusion. The judge also founded upon the balance of convenience. He concluded that it was more convenient here to release James Capel and possibly, in appropriate circumstances if the facts justified it, to restrain Mr Zie. The machinery was already in place, to allow that to happen if I were to come to a conclusion adverse to Mr Wong this morning. That conclusion to my mind is totally understandable from the judge's starting point. But if his starting point is open to challenge, as I am minded to think, then likewise the whole question of the balance of convenience becomes much more debatable and arguable.

15. Two points which were not expressly relied upon by the judge were touched upon in argument and were, I understand, taken in argument before him. I have considered them. The first is the impact of this vexed question of Mareva injunction; and secondly, whether on redemption, the fact that the Tabor mortgage might then take over and require James Capel not to deliver the shares of Tony Wong but hold that to the order of Tabor, is fatal to this whole contention. From the very superficial investigation that I have been able to undertake it seems to me that neither of those points is obviously fatal or necessarily to Wong's contention.

16. The last and also very troublesome question is: what is the position about Capel's Security if they were to be restrained even for a brief period. Should the court not be ordering that the whole sum be brought into court or otherwise secured to protect Capel? This was a question which this court had to consider in an earlier appeal on the first round of this dispute which was Wong v Tabor. Sir Derek Cons V-P giving the judgment of the court said this in the penultimate paragraph : -

"If the security for that amount were at risk then equity would require payment in full into court, but as we have already observed Tabor cannot see any significant risk and we are in no position to differ from that assessment of the situation."

17. What is the position here: is the security at risk? Looking at the situation as best I can, it seems to me that the position is still the same as it was when we looked at it in the Tabor appeal. Talking of risk in this case, is in the present situation somewhat unreal. I have been told that the latest market price of the shares publicly quoted is 70 cents. It seems to me that that is very little indication indeed because we are concerned here with a substantial parcel giving control. The plain fact of the matter is that everybody is falling over themselves to redeem this mortgage in order to obtain this control. On the one side there are the Arbus interests which are now allied with Wong. On the other side there are Tabor, Lam and Zie either individually or still collectively I cannot tell which. James Capel has been in a happy position of deciding whose cheque or whose banker's draft it was to take. In those circumstances it seems to me that for the short period of time which any interim order that I might grant will operate, the risk is insignificant. When I look back at the past history when Capel has had an enforceable right to sell and had done nothing, and when I look back at the people clamouring to take these shares over, I feel justified in concluding that this risk is illusory. I therefore do not think it necessary to require more from Mr. Wong than an undertaking in damages.

18. I say it is a short period because having enlisted the help, which has readily been given of the Clerk of the list, I am told that there are two possible dates. The first is 29th June which is a Friday. There is a possibility of going on a Monday, but I cannot possibly commit my colleagues to that now. If that does not work, the following Friday is also free. So you would have your two dates, Friday 29th June and Friday 6th July.

19. In all the circumstances it seems to me that this is a case where I should intervene to make an order restraining James Capel from executing any assignment of these shares in favour of Mr Tony Zie pending the determination of Mr Wong's appeal.