MANDARIN RESOURCES CORPORATION LTD v. DAVID CHENG HENG SOON AND OTHERS

IN THE COURT OF APPEAL

1987, No.146
(Civil)

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J U D G M E N T

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Cons, V.-P.:

1. This is an application for an interim order to appoint a receiver pending an appeal to this Court which is likely to be heard in February or March of next year. The Notice of Motion is in these terms -

“1. Raymond Barry Hughes, Chartered Accountant of 4th Floor, Baskerville House, 22 Ice House Street Central, Hong Kong be appointed interim Receiver of the 14,999,999 shares in Markle Land Limited which are registered in the name of the 4th Defendant to make all necessary enquiries and to take all necessary steps to preserve the value of those shares and all rights that attach to them or have accrued to them since the 16th day of October 1985 - until the final determination of this appeal;

2. The time for the service of this Notice of Motion be abridged to one clear day before thehearing;

3. The costs of this application be provided for.”

2. The background, as it is put forward by the Plaintiff, is that in September 1985 the Plaintiff, Mandarin Resources Corporation Limited, owned all the shares in Markle Land Limited, the 5th Defendant. The sole asset of the 5th Defendant is two blocks of flats, I think some 13 storeys high, in the Repulse Bay area. The Plaintiff suggests that it was induced by the fraud of other individual Defendants, who by means of nominees control most of the other corporate Defendants, - save the Malayan Banking Berhad, the 8th Defendant, - to sign an agreement selling its shares in the 5th Defendant to the 4th Defendant, Lucky Man Properties Limited. The total consideration for the deal was to the value of HK$28.5 million. The agreement was executed in October but by reason of a cheque kiting fraud carried out by the Defendants, no payment was made to the Plaintiff, which has therefor suffered a loss to that extent.

3. By the action from which these present proceedings arise the Plaintiff seeks various reliefs against the various Defendants, and in particular that the transaction for the sale of its shares in the 5th Defendant is null and void and that the 4th Defendant holds the shares, and thus the property ultimately controlled by those shares, in trust for the Plaintiff.

4. In September this year Jones J., after a somewhat lengthy hearing, discharged a Mareva injunction which had been granted earlier against the 5th Defendant, but he continued a similar injunction granted against the4th Defendant, extending its terms to some extent to prevent the 4th Defendant from using its shares in the 5th Defendant to dispose of the property.

5. However, it was felt on behalf of the Plaintiff that this was not sufficient protection of their interests in view of the control which was claimed still to be exercised by the 9th Defendant, Mr. Ho Hua Min, over the 5th Defendant, and of the lack of faith which the Plaintiff entertained as to his honesty and integrity, a lack said to be justified by his previous conduct. Therefore the Plaintiff applied for and on the 19th October obtained from Mayo J. the exparte appointment of a receiver over the shares of the 4th Defendant in the 5th Defendant and also over the assets of the 5th Defendant. The latter is no longer pursued and indeed the action against the 5th Defendant has been discontinued.

6. On the 29th October Mayo J. set aside hisorder. The Plaintiff has appealed against that rescission, and the appeal is expected to be heard early next year as I have already mentioned. In the meantime we are asked to make an interim order pending the result of the appeal, a course which the judge below refused to take.

7. Mr. Kwok for the 4th Defendant took whatwas in effect a preliminary objection based on the judge’s reason for rescinding his order, namely, that he was persuaded he lacked jurisdiction to make it. It is suggested, as I understand the argument, that where jurisdiction is in issue no interim order may be granted by a court except after a full hearing and final decision thereon, lest the court should make an order which is in fact beyond its jurisdiction.With respect to counsel for my part I see no substance in that argument. I see no reason to differentiate at this stage of proceedings between an issue of jurisdiction and any other issue which may ultimately call for decision.

8. The questions for us are much the same as they were for the judge below, save that the triable issue he had to consider was an issue triable at the trial of the action itself, whereas the triable issue that we have to consider is the issue to be decided on the appeal. But that must of course encompass to some extent the issue at the trial.

9. In this respect there are massive allegations of fraud against the Defendants, supported by affidavit. As yet the allegations have been unanswered by any form of evidence. The natural inference in those circumstances is that a repetition of fraud, unless checked as far as possible, is not unlikely to be perpetrated. Should then the Plaintiff ultimately succeed, it will find itself with an empty judgment.

10. Mr. Kwok has suggested that the conduct of the Defendant shows otherwise. He points out that there has been no attempt to dispose of either the shares or the property despite opportunities that have occurred. He instances the failure of the 4th Defendant even to apply for vacation of the lis pendens recorded against the property sometime ago as support for reliability in the expressed intentions of the Defendants not to do so. He has made several points which I think can be not unfairly banded together as a reference to the apparent lethargy of the Plaintiff in the pursuit of these proceedings, which indicates a lack of true belief in the likely dissipation of the assets. He has further observed that the claims of the 4th Defendantdepend upon its being shown to have knowledge of the fraud committed by the others and that under the terms of a guarantee given by the 4th Defendant in support of a mortgage of the property by the 5th Defendant the bank is entitled to call in the mortgage if either the 5th Defendant or, inter alios, the 4th Defendant should be subjected to the appointment of a receiver. He has suggested that the Plaintiff may perhaps not be good for any damages resulting from an interim order, a suggestion based to some extent on the admission that a claim by a third party against Mr. Stone, a Director of the Plaintiff, should really be an action against the Plaintiff itself. However the monetary value of that action, if any, is, at the end of the day, to me far from clear. He has also pointed out that there is on affidavit an assertion that the value of the 4th Defendant is some $50 million. There were other minor points,not seriously pursued.

11. I accept that there is force in some of the points made by Mr. Kwok. I also accept that in view of the lis pendens registered against the property it would not be easy to dispose of the assets that it represents. Nevertheless it would not be beyond the bounds of fraudulent ingenuity and fraudulent ingenuity has already been demonstrated in these proceedings.      I accept that a receiver may not necessarily be able to prevent such fraudulent ingenuity, but on the other hand its success would be disastrous to the Plaintiff. A receiving order would impose no hardship on the Defendant, unless perhaps the bank should decide to call in the mortgage. Even then, in view of the value of the land, I think the hardship would be minimal.

12. In these circumstances I would for my part be disposed to make an order of the kind requested.If my Lords should agree, as I understand they will, it may be that the most convenient method of dealing with it would be to ask counsel to agree a minute of an appropriate order to be made, including terms as to security. It is now late in the evening and perhaps we could deal with that tomorrow morning.

Clough, J.A.:

13. I agree with the judgment that has just been delivered by my Lord the Vice President.There is only one minor comment I wish to add, and thatisthatMayo J. also made an order on the 23rd October 1987 in terms that would appear to modify his exparte order made on the 19th October 1987. But on the 29th October the judge also discharged the order he made onthe 23rd October. Both orders having been now discharged, nothing turns on the fact of the order made on the 23rd October, and I only mention that particular order to supplement the relevant facts in this case.

Power, J.A.:

14. I concur with what has fallen from the Vice-President and my Brother Clough and have nothing to add.