HSIN CHONG CONSTRUCTION COMPANY LIMITED v. YATON REALTY COMPANY LIMITED

CONSTRUCTION LIST 1986 No. 2

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. I have before me an application to discharge two orders made ex parte on 18th August by Jones J. The application to discharge is made by the defendant ex parte on notice, but the matter has been argued fully in effect, inter partes today. If it were not 4:45 pm on the last Friday of my present sojourn in Hong Kong, I might have taken time to consider it. But I have no option but to try and express my judgment as best I can.

2. The first order that was made is an order for a Mareva injunction. By way of introduction, I should say this. The plaintiffs are a building company who are in fact claimants in a pending arbitration against the defendant. The arbitration arises out of a dispute under a building contract made on 1st May 1982. It is a property called Fortress Tower in the King's Road. The' arbitration was started in June 1984. It is proceeding slowly.

3. The first point that I think I am bound to make is this. In order to start this proceeding, the plaintiffs applied ex parte to Jones J. and before him, gave an undertaking to issue the writ of summons. The writ of summons was in fact issued the next day. For the life of me, I cannot see why a writ of summons is necessary in this case. The first claim in the writ is a claim for damages for breach of the building contract, which is all precisely covered by the scope of the arbitration agreement. This matter seems to me to fall four square within section 14 of the Arbitration Ordinance, Cap. 341 which gives the Court power by 14(6)(h) to grant interim injunctions. The whole of the effective relief sought by this writ is in fact claims by way of injunction whether be they Mandatory or Mareva. So I do not for a moment understand why we have got a separate action at all. I say that, as it were, by the way.

4. The injunction granted restrained the defendants from "selling, charging, mortgaging, pledging, disposing of, transferring or removing from the jurisdiction or otherwise dealing with or parting in any way with the defendant's assets", so pausing that it was an all assets Mareva; "and in particular the property at Island Lot 8416 King's Road, Hong Kong, known as Fortress Tower, or the title deeds thereof or the proceeds of any sale and/or disposal of any interest in assets or property provided that the defendant be at liberty to deal with any of its assets for the purpose only of conducting its business on a day to day basis. "

5. The matter came before Jones J. upon an affirmation made by Mr. Tang Lap Yan. He sought to deal with the two points which are necessary for a plaintiff to establish, seeking a Mareva injunction. I do not think I can do better for that purpose than rely upon the judgment of Kerr, L.J. in Ninemia Maritime Corporation v. Trave⁽¹⁾ where he said first that what the plaintiff has to show is a good arguable case. He says this at p. 1417:

"A good arguable case is no doubt the minimum which a plaintiff must show in order to cross what the judge rightly described as the threshold for the exercise of the jurisdiction,"

That is the first point that arises on any such application like this. The second is this. Again I quote from the same judgment at 1422:

"In our view the test is whether on the assumption that the plaintiff has shown at least a good arguable case, the court concludes on the whole of the evidence then before it, that the refusal of a Mareva Injunction would involve a real risk that a judgment or award in favour of the plaintiffs would remain unsatisfied. "

The operative words here are "real risk that an award in favour of the plaintiffs would remain unsatisfied". That has to be decided on the whole of the evidence, not simply the whole of the evidence which was put before Jones J. but the whole of the evidence which is before me today.

6. So the first question is: Have the plaintiffs in this case shown a good arguable case? This gives rise to a very nice point when you get large claims being made under a building contract. The way that this was put before the court was this. The pleadings were exhibited. It was then asserted by the deponent to the affirmation "I verily believe that the contents of the plaintiffs' pleadings are true and correct, save the plaintiffs' financial claim is being amended and the effect of that amendment is that the financial claim is then being put at $30,000,000". Do applicants in these circumstances show a good arguable case by that method?

7. The good arguable case which you then can find asserted in the pleadings seems to come down to this. It is true that there is no substantial complaint about the quality of the plaintiffs' work, and that was a matter upon which Mr. Rodway particularly founded. But the real argument between the parties arises over delay. The contract provided :

 

(a) for an actual completion date;

 

(b) for power to extend that given to the architect;

and           (c) for the architect to certify the date of actual completion.

What he did was to extend the contractual date for a short time from 23rd June 1983 to 31st August 1983. But the date of actual completion certified by him was in May 1984. Two consequences followed from that. The first was that from the sums certified as being properly due to the plaintiffs for their construction work, a figure of $6.1M or thereabouts was deducted by way of liquidated damages for delay. One of the first claims is for recovery of that. Secondly it meant that since the completion date was only extended to 31st August 1983, the plaintiff recovered no prolongation costs, no overheads no onsite expenses or overhead expenses beyond that date. A major claim which is being made in this arbitration is for those sort of items by way of damages, which arose after 31st August and before actual completion.

8. So the issue comes down to a much narrower one than emerges on a simple reading of this affirmation. Is it sufficient for a plaintiff in this sort of case to say "Look, here is my case, here is my argument"; Ergo, this is a good arguable case. Or does he have to go further and say "I have been paid here what the architect certified, but the architect's certificates are all wrong. On stated grounds he should have extended the time beyond the 31st August; he should have extended the period all the way up to May 1984 and certified more". In other words does the plaintiff have to show, that he has a good arguable case for saying that the architect is wrong. At the moment the architect's certificates, both the final certificate and extensions of time are what limit the payments that had been made under this contract. It seems to me that what the plaintiff has to do to show at least a good arguable case that this architect has certified wrongly, and that there is some good grounds for saying that the architect got it all wrong in the way in which he certified. I simply have not been started to be taken into a case of that nature.  It has not sought to be developed in the affirmation. I cannot possibly conclude upon the papers that have been brought to my attention that this is an onus which this plaintiff has satisfied. Indeed Mr. Rodway disclaimed any intention of satisfying it; he said that it was not necessary. I do not accept that. I think that this is something which a plaintiff in these circumstances has to satisfy and that this plaintiff seems to me to have failed to do so.

9. I then turn to the second question which is whether there was a real risk of an award being unsatisfied. Here the matter which stimulated this application was this. The company structure in this case is that Yaton Realty Co. Ltd., the defendant, appears to be a wholly owned subsidiary of a Hong Kong company which is called Hong Fok (HK) Investment Ltd., or a name like that; and that is in turn a subsidiary of a Singaporean company called the Hong Fok Corporation. Starting in July there were newspaper reports in Singapore and in Hong Kong that the Singaporean Corporation was in difficulties. It had over-extended itself on its property developments, and had defaulted in the first capital repayment of some syndicated bank loan which had been used to finance an apparently substantial new building in Singapore. It was asserted in the papers both in Singapore and in Hong Kong, that the company might have to realise assets in Hong Kong in order to support its Singaporean parent. Later newspaper reports said that it was not true, and that the matter had been dealt with in Singapore. But the risk of that is one of the matters upon which the plaintiff principally founds.

10. The way in which the matter was put in the initial affirmation is this. "What has concerned the plaintiff and its board of directors is that the property (i.e. Fortress Tower), being the only apparent substantial asset of the defendant, not be sold, transferred or otherwise disposed of until the arbitration award is obtained and if and the plaintiff favour, then enforced. "

11. Later on, when he is canvassing the position which might arise if the shares are relisted (which has not yet happened) Mr. Tang says: "the financial position of Hong Fok Corporation, (that is the Singaporean Corporation) is such that there is no guarantee that the property, i.e. the Tower, will not be sold or otherwise disposed of to meet the demands of creditors. "

12. The matter is put there quite obviously and simply upon the basis that this plaintiff is looking for security. It is seeking to make sure first of all that the property is not used to satisfy the demands of any creditors, it says so in terms; and secondly that there should be no sale or transfer or disposition of the property. Indeed they were seeking to put themselves in a position, in Mr. Rodway's own words of being second mortgagees behind the bank borrowing of something of the order of $110m and $120m on this property. The contention which has been advanced with great skill and determination by Mr. Rodway is that this is something which the plaintiff can achieve. He says that it is difficult for the plaintiff to achieve this directly, but that he can achieve it indirectly by a Mareva injunction, and that the inevitable effect of a Mareva injunction is to give the successful claimant, in effect, the security of a second mortgage. That is why he claims that this plaintiff is entitled to the injunction in the terms that I read which starts by restraining "the selling, charging, mortgaging" and so on of this property.

13. In my judgment, this approach is simply not well-founded. It is, in my belief, totally contrary to the principles on which Mareva injunctions are granted in any circumstances, directly or indirectly. There is a great weight of authority for the proposition but the purpose of the Mareva is not to give the claimant security. It is not to re-write the laws of insolvency. It is not to give a claimant the right of a creditor. There is massive authority as I understand it, to that proposition. One can start with the judgment of Kerr, L.J. in Z Limited v. A.Z.⁽²⁾ at p. 307:

"Bearing in mind, the great value of this jurisdiction, it must not be debased by allowing it to become something which is invoked simply to obtain security for a judgment in advance, and still less as a means of pressurising defendants into settlement. "

He repeated almost exactly the same thing in the judgment from which I have already cited in Ninemia Corporation⁽¹⁾, page 1422C:

 

"But as the law stands, this jurisdiction cannot be invoked for the purpose of providing plaintiffs with security for claims, even when these appear likely to succeed, (I am speaking generally and not by reference to this case), and even when there is no reason to suppose that an order for an injunction or provision for some substitute security by the defendants would cause any real hardship to the defendants. "

Equally forthright were the observations of Lord Ackner as he now is in A.J. Bekhor & Co. v. Bilton⁽³⁾ at page 577 about not rewriting the law of insolvency. He says-

"The courts must be vigilant to ensure that the Mareva defendant is not treated like a judgment debtor. ' It was no doubt with this general principle in mind that Robert Goff, J. in A. v. C. was at pains to point out that it would not be right to make general use of the power to enable the plaintiff to discover whether the defendant had any assets here. "

He cites with approval the judgment of the same judge in the Angel Bell⁽⁴⁾ to the like effect.

14. In my judgment this submission is simply not well-founded, and the whole of this application was put forward on a basis which was, in my respectful view, misconceived. The plaintiff was quite openly asking for security which the law, in my judgment, does not give him in these circumstances. So I look at the matter again and see what real evidence there is here of a real risk of an award of not being satisfied.

15. One start with this, that there is a considerable existing equity in this property. On any view, this equity exceeds the value of the maximum claim which is being made, namely, $30m. So that if you simply look at that figure and you ask yourself on the present evidence, is there a real risk of an award not being satisfied, the answer is no.

16. Secondly, the defendants have gone on oath to say that they have no intention of removing or otherwise dissipating its assets, so an arbitration award would be defected.

17. Thirdly at the moment, there is no evidence of any sort of removal of assets from this jurisdiction at all. The only evidence upon which Mr. Rodway can found is the evidence which shows that the actual borrowing appears to have gone up by something in between 6 and 7 million on this particular property. But I do not see that as a significant event, having regard to the size of the existing equity. Again it seems to me that I could not start to accept Mr. Rodway's approach which was that because his client had a claim, he was entitled as it were to dictate the manner in which this defendant should operate his property and should be entitled to say that you cannot do anything with it. The form of amended injunction which I was asked to continue, makes this point quite clearly. Because a further qualification it was said should be introduced after the word "property"! "Other than in such a way as to preserve an unencumbered sum of HK$30 million against which the plaintiff could satisfy any award under the existing arbitration proceedings." In other words, the whole object of the injunction was to provide the very security which it seems to me upon authority that the court should not be giving.

18. It is probable that the parent company in Singapore has got itself into financial difficulties, that there has been a restructuring exercise, and that this exercise has in part been conducted in Hong Kong as well. But I am far from sure myself at the present moment, (although it is not necessary to decide this point on this application) that payment of legitimate debts abroad is something which this court should be stopping by way of Mareva injunction. It is perfectly plain on the existing authorities, of which the Angel Bell⁽⁴⁾ is one, that the court should not stop a defendant from paying its legitimate debts within the jurisdiction. It said that outside the jurisdiction it is quite different, and that the court should draw a sort of iron curtain or moat round Hong Kong and say: "debts within the jurisdiction, yes; legitimate debts outside the jurisdiction, no." I have the gravest doubts as to whether that principle is well founded, but it is unnecessary, as I say, to go that far today. Because upon the evidence as a whole as I see it, the plaintiffs have not made out a case of a real risk of any award not being satisfied. So the Mareva part of this injunction should in my judgment be discharged.

19. The second part of the original order was an order for the defendant "forthwith upon service of this order to disclose upon affidavit all facts within their knowledge as to the present whereabouts of the said assets, property or proceeds of any sale and/or disposal of any interest or any part of it, or them is/are no longer in the possession of the defendant or its servants or agents, the circumstances in which the defendant or its servants parted with possession of the said sum or any part thereof. " (Sic)

20. I have no idea how an order in those terms came to be made ex parte and in these sort of circumstances. It does not seem to me to start to accord with the principles of Bekhor v. Bilton⁽³⁾ I will say no more about it except that no attempt had been made to enforce that part of the order, no harm had been done, and therefore I need say no more than that part of the order must likewise be discharged.

(1)    [1983] 1 W.L.R. 1412

(2)    [1982] 2 W.L.R. 288

(3)    [1981] 2 All E.R. 565

(4)    [1981] All E.R. 480