STPEHEN LIU YIU KEUNG AND AKAN GROUP LTD

HCA926, 928 & 929/2004

(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 926 OF 2004

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ACTION NO. 928 OF 2004

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BETWEEN

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ACTION NO. 929 OF 2004

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BETWEEN

(Heard together)

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DECISION

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1.  The defendants in these three actions have made identical applications by summonses for adjournment of the Order 14 hearing scheduled for 25 August 2004.  Since the same counsel and solicitors are involved and the arguments are essentially identical, the applications were heard at the same time.  At the conclusion of the arguments, I dismissed the defendants’ applications and gave oral reasons for my decision.  I now reduce the reasons into writing.

The factual background

2.  The three actions involve a total of eight Legal Charges created by one Keen Lloyd (Holdings) Limited, which subsequently changed its bane to Keen Lloyd Resources Limited (“KL”) in favour of Sin Hua Bank Limited (“the Bank”) between 1 May 1997 and 5 March 1998 in respect of three lots of residential properties and car parking spaces.  The key person in control of KL and other companies within the Keen Lloyd group of companies is Mr Chun (or Chin) Kam Chiu.

3.  The plaintiff is the Receiver appointed by the Bank under three of the Legal Charges for the properties secured under the various legal charges.  HCA 926/2004 relates to two Legal Charges both dated 9 January 1998, and the properties involved are a flat and a car parking space at Hong Kong Parkview.  As for HCA 928/2004, it concerns three Legal charges dated 19 June 1997 and 5 March 1998, and the properties comprise the penthouse and two flats and two car parking spaces at Dynasty Court.  In the case of HCA929/2004, three Legal Charges dated 1 May 1997 and 5 March 1998 are involved, and the properties comprise two flats and two car parking spaces at Altadena House, Baker Road. 

4.   The defendants in the three actions are BVI companies and claim to be the tenants of the respective properties.  The tenancy agreements were all made with Keen Lloyd Resources Limited and dated 18 April 2002 in the case of HCA 926/2004, 13 September 2002 in the case of HCA 928/2002 and 27 June 2002 in the case of HCA 929/2004.  

5.  On 21 April 2004, the plaintiff issued the Writs in the three actions.  In each of the actions, the plaintiff seeks a declaration that the tenancy agreement involved is null and void and of no effect, an order for possession, an injunction restraining the respective defendants from remaining in possession or occupation of the properties and mesne profits together with interest.

6.  As a result of the need to obtain leave to effect service outside jurisdiction, the Writs were only served on the respective defendants on 7 July 2004.  On 29 July 2004, the defendants through Messrs Paul Chan & Co gave notice of intention to defend.

The application to adjourn

7.  On 9 August 2004, the plaintiff issued in each of the three actions a summons for summary judgment and, alternatively for interlocutory mandatory injunction.  The summonses and the supporting affirmations were served on the same day.  The summonses were all made returnable before a judge in view of the relief of injunction sought.  The hearing is scheduled for 25 August 2004 with 2 hours reserved.

The application for adjournment

8.  On 18 August 2004, Messrs Paul Chan & Co caused to be issued a summons for the adjournment of the plaintiff’s three summonses.  The summons was returnable on 24 August 2004.  As there is no order consolidating the three actions, separate summonses were subsequently filed in each of the actions.  A supporting affirmation was also filed in HCA 926/2004 on 18 August 2004.  On 23 August 2004, a second affirmation in support of the application for adjournment was filed.

9.  The adjournment is sought on the basis that the defendants require time to retain counsel and to collate information in support of the proposed defence.  Although there are some complaints in the affirmations about listing the summonses for summary judgment before a judge as opposed to a master, it is not disputed by Mr Hingorani who appears for all the defendants that the plaintiff’s applications were made in compliance with the procedural requirements under Rules of the High Court.

10.  The defendants ask for 28 days to file evidence in opposition to the plaintiff’s applications.  It is explained because KL had been compulsorily wound up and Mr Chun is serving a term of imprisonment, the solicitor has difficulties in taking instructions and accessing the relevant documents.  

11.  The plaintiff opposes the adjournment on two broad bases. Firstly, it is said that the defendants’ proposed defence has no merits and is not reasonably arguable.  Secondly, it is said that the adjournment will occasion grave prejudice to the plaintiff.

The proposed defence

12.  The plaintiff’s claim against the defendants is twofold.  Firstly, the plaintiff says the tenancy agreements are not binding on the plaintiff because they were created without the prior written consent of the Bank or the plaintiff (whose appointment as Receiver pre-dated the tenancy agreements), and in breach of the Legal Charges, which had been registered in the Land Office.  Secondly, it is said that the tenancy agreements are not genuine. 

13.  The first affirmation of Mr Paul Chan in support of an adjournment did not disclose what the defendants’ defence is.  In the second affirmation of Mr Paul Chan, only one ground of defence was disclosed.  In essence, it is said that some time after mid-1997, it was agreed between Mr Chun and officials of the Bank that the Bank would increase the amount of facilities extended to the Keen Lloyd group of companies to HK$2.3 billion against collaterals already held by the Bank and additional collaterals.  As a result, further legal charges were created covering properties that include the properties that are the subject matters of the present actions.  It is said that the Bank was in breach of the agreement in that the facilities extended was less than $2 billion, and that the Bank was in fact unable to extend the agreed amount of facilities because it would exceed its lending limits.  It is said that this amounts to a failure of consideration by reason of which the Keen Lloyd group is entitled to set aside the Legal Charges involved.  

14.  In support of the contention that the Legal Charges are liable to be set aside, reference was made to High Court Action No. 1299 of 2004, which Mr Chan said was commenced by “Keen Lloyd Group” against the Bank to set aside various agreements made with the Bank.  As the Writ was not exhibited to Mr Chan’s two affirmations, the plaintiff had handed up a copy of it at the hearing.

15.  I accept that generally speaking, the court is reluctant to embark upon a detailed examination of the merits of the proposed defence on an application to adjourn for the purpose of filing evidence in support.  This is because the materials before the court are likely to be incomplete.  In the present instance, however, there are clearly a number of insurmountable obstacles associated with the defendants’ defence.

16.   Firstly, there is no legal basis for setting aside the Legal Charges purely because the Bank had failed to advance up to the allegedly agreed level of $2.3 billion.  Quite apart from the fact that it is inapt to regard this as amounting to a failure of consideration, it is said in Mr Paul Chan’s 2nd affirmation that the Keen Lloyd Group had performed the alleged agreement and it is not in dispute that the Bank had made advances, though not up to the level of $2.3 billion.  Hence, even if the Bank were indeed in breach of the agreement as alleged, the remedy would be in damages but not for setting aside of the legal charges and the discharge of the securities.

17.  Secondly, HCA 1299 of 2004 was brought by Keen Lloyd Energy Limited and KL or its Liquidators was not made a party to it. The claim as appeared from the Indorsement of Claim prepared by Messrs Paul Chan & Co., is for damages in the sum of $ 5 billion.  No rescission or setting aside of any agreement, let alone Legal Charges, is claimed by way of relief.  The assertion Mr Paul Chan made in his affirmation that the Keen Lloyd Group had commenced HCA 1299 of 2004 to set aside the legal charges in these actions is plainly incorrect.

18.  Thirdly, KL and Keen Lloyd Energy Limited had entered into a Memorandum of Agreement dated 14 April 2000 (“the Memorandum”), which is in effect a debt restructuring agreement, with the Bank.  The preamble of the Memorandum states that “… [the companies] have requested [the Bank] to withhold taking immediate legal proceedings against the Group for the time being for the recovery of outstanding indebtedness …”.   The companies also agreed under the Memorandum to sell and surrender possession of properties charged to the Bank by the companies.  It is not disputed that the three lots of properties and the Legal Charges involved in these proceedings form part of the subject matter of the Memorandum. 

19.  In 2001, Keen Lloyd and Keen Lloyd Energy Limited commenced HCA 1319 of 2001 against the Bank and its Receivers, including the plaintiff, claiming that the Bank had acted in breach of the Memorandum.  In applying for interlocutory injunction and resisting the application for discharge, the two companies had mentioned nothing about the Bank being in breach of an agreement to increase the facilities such that the Legal Charges and the securities given to the Bank were liable to be set aside or discharged. 

20.  Not only that, in entering into the Memorandum, the companies must have effectively affirmed, among others, the Legal Charges in question.  KL cannot now turn round and say the Legal Charges are liable to be set aside, and dispute the Bank’s and its Receiver’s rights over the properties charged.

21.  It is also to be noted that the three tenancy agreements relied upon by the defendants were all made in 2002, after the commencement of HCA 1319 of 2001.  The evidence also suggests that the defendants are related companies or subsidiaries of KL so that they ought to have known of the restriction on alienation imposed on KL under the Legal Charges.  The defendants have adduced no evidence suggesting that the prior written consent of the Bank, as required by the terms of Legal Charges, had been sought and/or granted.

22.  Further, despite that the plaintiff disputes the genuineness of the tenancy agreements and that in an Order 14 application, the defendant has the burden of showing triable issues, there is no explanation as to the  true status of the defendants and the alleged loan transactions that gave rise to the tenancy agreements.

23.  In seeking an adjournment, the defendant bears the burden of showing that the adjournment will not be fertile and will serve useful purpose.  The defendants have plainly failed to discharge this burden.

Prejudice to the plaintiff

24.  The plaintiff says that it will suffer grave prejudice if the adjournment is granted in that the Bank and its Receiver will continue to be deprived of the possession of the properties and they have for quite some time not received any repayment or income from the properties.  I accept that these are real prejudice.

Conclusion

25.  For the reasons set out above, I am of the view that the discretion should be exercised against granting an adjournment.  I therefore refuse the defendants’ applications and dismiss all the three summonses for adjournment.  The costs of the summonses are to be paid by the defendants to the plaintiff in any event, to be taxed if not agreed.