LAM SIK SHI v. LAM SIK YING & ANOTHER

HCA 1605/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1605 OF 2004

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J U D G M E N T

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I.  Introduction

1.  The Plaintiff and the 1st Defendant are beneficiaries of Lam Tim’s estate.  The 1st Defendant is now the estate’s sole administrator.  The Plaintiff and the 1st Defendant are half-brothers. 

2.  The 2nd Defendant is a company controlled by the 1st Defendant’s sister, Lam Mo Lin.  The sister is also a beneficiary of the estate.

3.  On 8 July 2004 the Plaintiff obtained an ex parte injunction from Tang J enjoining the Defendants from carrying through with the sale and purchase of No.6 Sharp Street East, Hong Kong.  That property forms part of the estate. 

4.  The property is a valuable asset.  The Plaintiff says that it has a current value of $26 million.  The enjoined sale is for a consideration of only some $10.8 million.  The Plaintiff alleges that the 1st Defendant is selling the property at a gross undervalue to the 2nd Defendant.  The Plaintiff contends that such sale would be in breach of the 1st Defendant’s fiduciary duties as administrator of the estate. 

5.  The Plaintiff further says that the 2nd Defendant knew, turned a blind eye, or was reckless to the fact that the 1st Defendant was acting in breach of his duties in selling the property at a low price.  The Defendants deny this.

6.  The question before me is whether the injunction should continue until trial.

II.  Discussion

7.  The principles of American Cyanamid are applicable.

8.  Both sides accept that there is a serious case to be tried.  I have to assess whether or not the balance of convenience favours the maintenance of the injunction.  In evaluating that balance, 2 specific considerations weigh on me.

9.  First and most importantly, it seems to me that the Plaintiff would be adequately protected by the registration of his statement of claim in these proceedings as a “lis pendens”.

10.  Assume that the sale to the 2nd Defendant goes through.  If the Plaintiff is right, the 2nd Defendant would hold the property on constructive trust for the estate.  Any judgment could be enforced against the property, which being land in Hong Kong cannot disappear.  That would be true whether or not there was an injunction.

11.  Assume now that the sale not only goes through but that the 2nd Defendant attempts to sell the property to some innocent 3rd party.  The prior registration of the “lis pendens” would serve as constructive notice of the Plaintiff’s claim.  The 3rd party purchaser would take the property subject to that interest.  Again that would be true whether or not there was an injunction.

12.  I note that the sale and purchase agreement between the 1st and 2nd Defendants stipulates that the latter is not to alienate the property for a period of 7 years following purchase without the vendor’s permission.  A prospective 3rd party purchaser would have notice of such restrictive covenant in the sale and purchase agreement (which has been registered).  It is thus unlikely in practical terms that there would be a 3rd party purchaser before the trial of this matter. 

13.  Even if a 3rd party purchaser materialises and asks the 1st Defendant to lift the covenant, it seems to me that the 3rd party would take subject to the “lis pendens”.  Further, the 1st Defendant would be bound to inform the Plaintiff of the 3rd party’s request and make discovery in these proceedings concerning it.

14.  Second, the Plaintiff candidly admits that he currently has no assets to make good any undertaking in damages.  Although a beneficiary of the estate, he is bound by a court order in divorce proceedings to pay some $12 million to his former wife.  That amount would consume most, if not all, of the Plaintiff’s interest in the estate.  It is therefore unlikely that the Plaintiff could make good any damages suffered by the Defendants as a result of delay to the sale and purchase of the agreement occasioned by any injunction.

15.  Mr Hung (appearing for the Plaintiff) submits that any damages would be minimal.  By the restrictive covenant in the sale agreement, the 2nd Defendant is forbidden from selling the property within 7 years.  All the 2nd Defendant could enjoy during that period would be rental from the property.  On the other hand, the estate (Mr Hung points out) enjoys rental income from the property which should be sufficient to meet the estate’s expenses pending trial.  Mr Hung may be right.  But I do not think that I can ignore the Plaintiff’s personal lack of assets by which to make good any damages suffered as a result of the injunction.  For example, the correspondence among the parties suggests that the Plaintiff had difficulty even meeting an expense of $4,000 for the photocopying of relevant documents.

16.  Given the foregoing considerations, I do not believe that the balance of convenience calls for maintenance of the injunction.

17.  Ms Dora Chan (appearing for the 1st Defendant) has suggested that there was no urgency justifying the obtaining of an ex parte order.  She also suggests that the Plaintiff misled the Court when it obtained the injunction.

18.  It suffices for me to note that I find no substance in those allegations. 

19.  Although he had heard of a possible sale previously, the Plaintiff only suddenly discovered on about 1 July 2004 that a sale of the property had actually been concluded.  An updated valuation of the property’s value did not reach the Plaintiff’s fax machine (which had malfunction problems) until 6 July 2004.  The 1st Defendant and his solicitors had previously been uncooperative and unforthcoming about details of any prospective sale of the property despite inquiries by the Plaintiff and his sister Lam Mo Chu.  In the circumstances it does not seem unreasonable to me for the Plaintiff to have decided to apply for ex parte relief.

20.  I do not think that the Plaintiff misled the Court in any material way as to the circumstances leading to his decision to apply for injunctive relief.  In particular, contrary to Ms Chan’s submission, I do not find any “twisting” by the Plaintiff of the statement in a letter dated 21 June 2004 from the 1st Defendant’s to the Plaintiff’s solicitors that “No mention has been made of any Agreement for Sale and Purchase.”  That statement suggests that there was no sale and purchase agreement even though one actually appears to have been entered into by the 1st and 2nd Defendants on 11 June 2004.

21.  Nor do I think that the allegation of unclean hands made by Ms Chan raises matters which are relevant to the grant or continuation of the interim injunction here.

III.  Conclusion

22.  The injunction is discharged.  I shall now hear parties on costs and any consequential orders.