EASTWAY LTD v. PNK INTERNATION LTD

HCA 560/2024

[2024] HKCFI 950

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 560 OF 2024

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D E C I S I O N

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1.  Having heard the parties’ submissions, I consider that the interim-interim injunction sought by the Plaintiff (with some modifications agreed to by the Plaintiff at the hearing) is warranted in the present case and should be granted. I will also give further directions for the filing of evidence and substantive hearing of the Plaintiff’s summons dated 25 March 2024 for interlocutory injunctive relief (“P’s Summons”).

2.  As stated by the Court of Appeal in the case of China Shanshui Cement Group Limited v Zhang Caikui [2018] HKCA 409 at §13, interim-interim relief is meant to be an urgent temporary stop-gap measure and the circumstances are such that the Court has to do practical justice on the balance of fairness even though it may not have sufficient time to consider the matter fully.

3.  Bearing in mind that the matter is still at a very early stage, when only the Plaintiff has filed evidence in support of P’s Summons, it would not be appropriate for this Court to form any firm view on the merits of the Plaintiff’s claim. However, as the Court of Appeal held in China Shanshui Cement Group at §17, the extent to which a judge gives weight to the merit on an issue in a particular case depends very much on the context and they are obviously other factors at play including the effect of the grant or refusal of the relief and the subject matter at stake. In a case where the Court sees fit to consider the merit and comes to the conclusion that the plaintiff cannot even establish a serious question to be tried, this must be a good and sufficient reason not to grant any interim-interim injunction (China Shanshui Cement Group at §19).

4.  Having considered the arguability of the Plaintiff’s claim for beneficial ownership of the subject property (“House 33”) solely based on the evidence now before the Court, I am of the view that the Plaintiff’s claim, at least on the face of it, appears to be supported by the document in Chinese entitled “委托書” dated 18 October 2015 (“Trust Letter”), which expressly states (inter alia) that House 33 is to be held by the Defendant as trustee for the Plaintiff, and shall not be sold, transferred or charged save with the prior agreement and written authorization from the Plaintiff.

5.  If the trust arrangement under the Trust Letter is valid and effective, then the recent actions on the part of the Defendant’s board on 23 March 2024 to pass resolutions (“D’s Board Resolutions”) to appoint solicitors as legal representatives in respect of the intended sale of House 33, and to authorize two of its directors to give instructions on behalf of the Defendant to such solicitors in respect of the intended sale would appear to be at least a threatened breach of the terms of the trust arrangement in the Trust Letter, as there has been no prior agreement and written authorization from the Plaintiff’s board of directors for any such intended sale.

6.  I note that there are ongoing proceedings in HCA 1146/2022 where the beneficial ownership of the Defendant is being litigated, and in which this trust arrangement between the Plaintiff and the Defendant also feature in the pleadings. In HCA 1146/2022, the 1^st defendant therein alleges that the Trust Letter has been terminated and revoked by the Plaintiff, and that the beneficial interest held by Plaintiff in various trust properties (including House 33) was assigned to the 1^st defendant in that action.

7.  The Plaintiff denies that the Trust Letter has been revoked or that there was such assignment as alleged. Given the pending disputes, and with the Defendant yet to file evidence in these proceedings, this Court is not in a position to form any firm view on the merits of the Plaintiff’s claim, including as to the validity of the Trust Letter. However, for present purposes, suffice it to say that purely based on the present evidence, it does not appear to this Court that the Plaintiff’s claim is frivolous, and that there is at the very least a serious issue to be tried as to whether the Defendant holds House 33 on trust for the Plaintiff pursuant to the terms of the Trust Letter.

8.  In fact, Mr Ronald Pang (counsel for the Defendant) has not suggested that there is no serious issue to be tried on the validity of the Trust Letter and the existence of the trust arrangement in respect of House 33 contained therein. He merely submits that the Defendant holds the legal title to House 33, and hence as a starting point, the beneficial interest in respect thereof follows the legal title. However, one simply cannot ignore the Trust Letter, which, if valid, is an express agreement that the Defendant holds House 33 on trust for the Plaintiff.

9.  Mr Pang further contends that the proposed sale of House 33 by the Defendant does not breach the alleged trust arrangement (even if such arrangement exists), as the purpose of the intended sale of the property is to generate cash flow to maintain the Chan family, and within the purview of the Defendant’s powers as alleged trustee. Given the express terms in the Trust Letter that House 33 shall not be sold, transferred or charged save with the prior agreement and written authorization from the Plaintiff, I am of the view that there is at the very least a serious issue to be tried that any sale of House 33 by the Defendant absent prior agreement and written authorization from the Plaintiff would be a breach of trust. The Trust Letter also expressly provides that House 33 is to be rented out to defray the Chan family’s expenses, as opposed to being sold.

10.  Mr Pang further argues that the intended sale of House 33 is simply for the purpose of preserving the Defendant’s assets, as the property is not generating rental income but is incurring significant expenses i.e. the property is a loss-generating asset for the Defendant. However, even assuming this is indeed the state of affairs (for which there is no affirmation evidence from the Defendant in support), it does not detract from the fact that under the express terms of the Trust Letter, any sale of House 33 has to be with the prior agreement and written authorization from the Plaintiff, for which there is undisputedly none. In any event, from the figures taken from the letter from the Defendant’s solicitors dated 20 March 2024, the rental income of the property was sufficient to cover expenses. The Defendant has not provided any reasons why it has not procured the property to be rented out after the previous lease expired.

11.  For these reasons, I am unable to agree with the Defendant’s submission that the Plaintiff has not even shown a serious issue to be tried on its claim on the present state of the evidence to justify a grant of interim-interim proprietary injunctive relief.

12.  For the purpose of deciding whether to grant interim-interim relief, this Court will also consider what may be necessary to do practical justice on the balance of fairness.

13.  In this case, I am of the view that the balance of fairness is in favour of granting the interim-interim injunction sought by the Plaintiff, in order to preserve the status quo before P’s Summons can be properly determined with evidence from both sides:

(1)  As the subject matter of the claim is landed property, damages would not be an adequate remedy for the Plaintiff. If interim-interim injunctive relief is not granted, the Plaintiff may suffer irreparable prejudice if House 33 is sold and the Plaintiff ultimately succeeds in its claim herein.

(2)  On the other hand, granting interim-interim injunctive relief will not cause real prejudice to the Defendant, which is merely an asset holding company.

(3)  The substantive hearing of P’s Summons should take place in a few months’ time. The Defendant has not indicated any real urgent need for House 33 to be sold in the next few months. In fact, in the Defendant’s solicitors’ letter dated 20 March 2024, it was stated that it was not intended for the property to be sold urgently, the Defendant does not presently have any specific intended use of the proceeds of sale even if the property is sold, and no estate agent had yet been engaged. D’s Board Resolutions were passed to enable the Defendant to consider offers (if any) from any intended purchasers. Mr Pang’s reference to the Defendant’s net liabilities is neither here nor there, as it is clear from the financial statements of the Defendant for the year ended 31 March 2023 that the company’s net liabilities position is similar for 2022 and 2023, and the Defendant had never indicated an intention or need to sell the property at any time even up to February 2024.

(4)  In the circumstances, I agree with the Plaintiff that the course which carries a lower risk of injustice at this stage would be to grant the interim-interim proprietary injunction sought by the Plaintiff pending the determination of §1 of P’s Summons.

14.  For completeness, I do not agree with the Defendant’s submissions that the Plaintiff has delayed in issuing P’s Summons on 25 March 2024, being just 2 days after the Defendant’s board meeting on 23 March 2024 during which the D’s Board Resolutions were passed. According to the Affirmation of Chan Kam Ping (“Chan’s Affirmation”)[1], being a director of the Plaintiff and also one of three directors of the Defendant (the other two directors of the Defendant being Madam Sit Yau Kam (“Madam Sit”) and Chan Michael Cyrus (“Michael”)), it was at that meeting that Madam Sit and Michael refused to acknowledge the trust arrangement under the Trust Letter and passed the D’s Board Resolutions despite Mr Chan’s protests. As submitted by Mr Richard Khaw SC (counsel for the Plaintiff)[2] the risk of disposal crystallized on the passing of the D’s Board Resolutions.

15.  Mr Pang further submits that there is no risk of imminent harm to the Plaintiff, as the resolutions passed by the Defendant at the board meeting held on 23 March 2024 were just “procedural steps to facilitate the Defendant’s consideration of any offers from intended purchasers”, and no estate agents have even been retained nor has House 33 been put up for sale. However, contrary to Mr Pang’s submissions, the Plaintiff has filed affirmation evidence to the effect that on 27 March 2024, an online advertisement of House 33 was found on the website of 28Hse.com listing the property for sale. According to the Plaintiff’s evidence, the responsible estate agent confirmed via WhatsApp message that the property listed was indeed House 33 and he even provided a copy of the land search record. Mr Pang told the Court orally that his instructions are that the Defendant had not authorized the advertisement, but the Court is not provided with any affirmation evidence from the Defendant on this. In the circumstances, it does appear to the Court that the Plaintiff has provided at least prima facie evidence that House 33 has been put up for sale.

16.  Taking into account the evidence presently before the Court, including the timing, manner and circumstances in which the D’s Board Resolutions were passed on 23 March 2024 as described at paragraphs 39 to 56 of Chan’s Affirmation, the Defendant has indicated by its actions a clear intention to take steps to procure a sale of House 33 which it considers it has a right to do, but which, according to the Plaintiff’s case, would be a breach of trust. In the circumstances, I consider that the Plaintiff has shown that there is a risk that without any interim-interim injunctive relief, the Defendant will take steps to procure such sale, resulting in irreparable harm to the Plaintiff.

17.  Mr Pang further indicated at the hearing that the Defendant is willing to provide an undertaking to give notice to the Plaintiff of any offers received for the purchase of House 33. However, this does not, in my view, detract from the need for interim-interim injunctive relief to prevent any sale of the property, which on the Plaintiff’s case is a breach of trust.

18.  Mr Pang further argues that if interim-interim injunctive relief is to be granted, the Plaintiff should be required to provide a cross undertaking as to damages and fortification of such undertaking, given that it is an offshore company and its identified assets are currently the subject of dispute and litigation. Although I agree that the Plaintiff should, in the circumstances of this case, be required to provide a cross undertaking as to damages, I am not minded to order fortification at this stage given that the Defendant has not, in my view, shown a likelihood that it will suffer significant loss as a result of the interim-interim injunction sought, which will only be for a very limited duration of a few months. As the Defendant accepts, there is no urgent or imminent need to sell House 33. Mr Pang’s submission that any offers which may be lost could result in loss to the Defendant if there is a significant market downturn is in my view pure speculation, and contradicts the Defendant’s own position in its solicitors’ letter dated 20 March 2024 that the Defendant intends to put the property up for sale because the property market is picking up.

19.  For these reasons I will grant an interim-interim injunction in the following terms:

“ Until determination of paragraph 1 of the Plaintiff’s summons dated 25 March 2024 or further order of the Court, the Defendant (whether by its directors, officers, servants or agents or otherwise howsoever) be restrained from transferring, selling, disposing of, charging, encumbering, diminishing the value of or otherwise dealing with House No.B19 (also known as House No. 33) & (Including The Garden, The Planter and 2 Carparking Spaces Appurtenant Thereto), Constellation Cove, 1 Hung Lam Drive, Tai Po, New Territories, Hong Kong save with the written prior agreement and/or authorisation from the Plaintiff’s board of directors.”

20.  I will now hear the parties on the directions for the filing of evidence and for fixing a date for the substantive hearing of P’s Summons.