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

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JUDGMENT

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Sir Derek Cons, V.P., delivered the judgment of the court:

1. Mr. Tony Wong Chun Loong, the 1st Plaintiff in the proceedings which give rise to this appeal, was at one time the beneficial owner of approximately 42% of the issued share capital of Jademan (Holdings) Limited, a company listed by the Stock Exchange Hong Kong. The other four Plaintiffs are the companies through which Mr. Wong actually held his interest in Jademan.

2. In the summer of last year Mr. Wong was faced, inter alia, with financial difficulties. In particular he was, as at the 10th August, in debt to three financial institutions - James Capel (Far East) Limited, the Liu Chong Hing Bank and the Standard Chartered Bank - to a total of something like $115.6 million, against which he had mortgaged his shares in Jademan. He was rescued from his difficulties, although that is probably not the right word to use in view of what has subsequently happened, by a company called Tabor International Inc. (the 2nd Defendant). Tabor is a company incorporated in Liberia and owned as to 60% by a Mr. Lam Kin Ming (the 1st Defendant) and as to 40% by a Mr. Tony Zie (the 3rd Defendant). Tabor agreed to lend Mr. Wong $117 million, of which subsequently only just under $100 million was drawn down, to pay off the financial institutions, and to be repaid as to part thereof at the rate of $2 million per month, subject to a seven-day written demand for the full amount, which in any event was to be repaid not later than the 31st December, 1992. There were also provisions as to the payment of interest. In the event Mr. Wong's debt to James Capel (Far East) Limited was not paid off but instead transferred to Mr. Lam, supported by a personal guarantee given by Mr. Zie. The position regarding the loan from the Liu Chong Hing Bank is obscure. The loan from the Standard Chartered Bank has been repaid, but the share certificates still remain with the bank.

3. In return for the assistance from Tabor Mr. Wong gave to Tabor a charge over his shares in Jademan which would, of course, be secondary to the three mortgages to the financial institutions. As a further consideration for the loan to him, (and the receipt of $10) Mr. Wong gave Tabor an option to purchase 129 million of his shares in Jademan, exercisable at any time between the date of the first drawdown - August 1989 - and the 31st December, 1992. Provisions were made as to the price to be paid but these need not detain us here. These terms, and many others, were contained in two documents executed by Mr. Wong and Tabor on the 10th August last year.

4. By the 18th November Mr. Wong was considerably behind with his repayments. Tabor called in the full amount. No payment being made, Tabor became entitled, seven days later, to sell or dispose of the shares "in its absolute discretion without further notice", under the Security Document, one of the two executed by Mr. Wong on 10th August.

5. Since then Mr. Wong has given notice of his intention to redeem the shares, but made it conditional upon Tabor's releasing him from the option to sell the 129 million shares or accepting that the option was null and void as clog upon the equity of redemption. Tabor is willing to do neither. It has however given an undertaking, accepted by Mr. Wong, that it will not exercise the option until after the trial. The immediate dispute concerns only Tabor's entitlement to sell. On the 5th March, in a reserved decision following six days of argument, Saied, J. granted an interim injunction to restrain the sale of the shares by Tabor, conditional upon Mr. Wong paying to Tabor's solicitors within a certain period the sum of $12.2 million, a figure agreed to represent the arrears, and monthly payments thereafter of $2 million. Mr. Wong subsequently obtained stays of the condition until the commencement of this appeal and this Court has extended the stay until the appeal is finally determined.

6. By the appeal Mr. Wong seeks to have the condition set aside. By a Respondents' Notice Tabor seeks to have the injunction set aside, or continued only upon payment into Court of the full amount of the monies due under the mortgage and costs.

7. We have been reminded, by reference to the words of Lord Diplock in Garden Cottage Limited v. Milkboard, 1984, 1 A.C., 130, at 137, of the function of this Court in an appeal of this kind. One of the occasions when interference is permitted is where the judge below has based the exercise of his discretion upon a misunderstanding of the law. In the present appeal both sides have suggested that to be the case.

8. Mr. Tang, for Mr. Wong, contends that the judge ignored what he termed the fundamental obligation of a mortgagee "upon payment to reconvey the mortgaged' property free from encumbrances which would include clogs 'on the equity of redemption, if any". For support he turns to Cousins' "The Law of Mortgages" at p. 317:

9. Consequently, argues Mr. Tang, if Tabor is unwilling to reconvey the property free from the option clause it is not entitled to be repaid the mortgage monies, nor is it entitled to sell the security that it holds against the debt.

10. As a simple proposition that is unassailable, but it begs the question that will have to be decided at the trial. If that should be answered in favour of Tabor then Tabor's present claim to sell is well founded.

11. Mr. Mills-Owens, in his turn, for Tabor, contends that the judge failed properly to apply an equally fundamental rule requiring at least payment of the full amount claimed into court before sale of the mortgaged property will be restrained. The rule is explicitly set out by Walsh, J. in Inglis v. Commonwealth Trading Bank, (1972), A.L.R., 591:

12. Our attention has been drawn to many authorities to similar effect.

13. The rule is a general rule and not inflexible. Where there are special circumstances it may be satisfied by payment in of an amount less than that claimed, as for example in Macleod v. Jones, (1883), 24 Ch.D., 289 where the mortgagee had been the solicitor of the mortgagor at relevant time; or without payment in at all, as for example in Clarke v. The Japan Machine (Australia) Propriety Limited, [1984], 1 Qd.R., 421 where the judge referred to "the peculiar circumstances of this case"

14. In Rhodes v. Buckland, (1852), 16 Beav., 212, 51 English Reports 759, an injunction was granted when the first mortgagee proposed to sell after a subsequent mortgagee had offered to redeem the first mortgage. No reference was made to the general rule adumbrated above, but the case is nevertheless an illustration of the court's willingness to impose restraint without payment into court of the full amount. It is with respect not easy to ascertain the exact reason behind the decision. The learned editors of 32 Halsbury, 4th Edition, para. 725 appear to think that it lay in the mortgagee's refusal of the Plaintiff's title to redeem. The judge himself refers to possible collusion, generally speaking, between a first mortgagee and the mortgagor, but had earlier observed that the proposed sale, if carried out, would defeat the whole object of the suit, a common reason for imposing interim injunctions in all fields of litigation. Mr. Tang relies strongly upon this aspect of the case, observing that if Mr. Wong's shares in Jademan are sold now, Mr. Wong too will lose the whole object of his suit, i.e. the recovery of his controlling interest in the company.

15. The question then for this Court is whether the instant circumstances are such as could reasonably lead the judge below to conclude, as he must have done, although his decision was ultimately based on the desirability of maintaining the status quo, that the general rule ought to be displaced. In our view they are. The position is not unlike that which faced Sir John Romilly, M.R. in Rhodes v. Buckland where, at p. 217, he said:

16. A refusal of the injunction would in effect determine the case against Mr. Wong. The insistence of Tabor on the viability of the option clause makes it impossible for him to raise the full amount; the sale of the shares before trial would then remove the substratum of the action and make it pointless for him to continue.

17. At the same time the principal object of the rule, to preserve the security of the mortgagee, would in the present situation appear to be of little, if any, importance, for Tabor has clearly indicated by its conduct that it sees little risk in this respect. Otherwise why should it seek to sell the shares, when it would of course recover the principal lent, together with interest and costs, but would by the same token destroy the very option, its right to which it so strenuously insists upon, when refusing the offer of similar monies by Mr. Wong? It may be that the reason is not unconnected with the apparent interest taken by a third party in at least the shares mortgaged to James Capel (Far East) Limited, but be that as it may, the interest shown is an indication that so large a portion of shares in Jademan must in themselves possess a substantial inherent value.

18. The judge below gave no reason for imposing the condition that he did. It would not appear that he related it in any way to the possible risks referable to the injunction. Rather would it seem, having regard to earlier passages in his judgment, that he felt Mr. Wong should in equity make meanwhile the same payments for which he had originally contracted. If so, then  he overlooked the fact that as from February this year, when Tabor called in the full amount of the loan, Mr. Wong was no longer under any liability to make those payments. Regardless of the outcome of the trial Mr. Wong is already liable for the full amount together with interest. 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. In these very peculiar circumstances we are satisfied that no condition should have been imposed.

19. For these reasons we allow the appeal, set aside the condition imposed in the court below and dismiss the Respondents' Notice. We would be pleased to hear counsel as to costs.