CHUNG YUEN CHU AND ANOTHER v. COSIMO BORRELLI AND OTHERS

HCMP 2093/2017

[2018] HKCFI 849

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2093 OF 2017

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JUDGMENT

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INTRODUCTION

1.  Pursuant to the Order of Mr Justice G Lam dated 6 November 2017, the issue to be determined in this trial of preliminary issue is whether the 2 Deeds of Shares Pledge (the “Pledge(s)”) both dated 1 April 2015 over the Plaintiffs’ shares in SRO Group (China) Limited (“SRO”) are null and void, or are otherwise invalid and/or ineffective, on the ground that they either (i) are irredeemable, or (ii) contain provisions repugnant to the equity of redemption. 

2.  For the reasons which I shall explain below, I do not consider the Pledges to be irredeemable, or contain provisions repugnant to the equity of redemption.  Accordingly, the Plaintiffs’ challenge to the validity of the Pledges fails. 

BASIC FACTS

3.  The transactions amongst the parties giving rise to the Pledges are of some considerable complexity.  For the present purpose, the following brief summary shall suffice. 

4.  The 1^st and 2^nd Plaintiffs (collectively the “Pledgors”) are father and son.  They were the 100% shareholders of SRO (the 5^th Defendant), a company incorporated in Hong Kong. 

5.  Prior to 2015, the Company owned 75.73% of a PRC company called X-Fiper New Material Co Ltd, previously known as SRO Aramid (Jiangsu) Co Ltd (the “Company”), which in turn held 3 subsidiaries.  The Company and the 3 subsidiaries (collectively referred to as the “Group”) were engaged in the research, development and manufacture of high performance meta-aramid materials. 

6.  In about 2014 to 2015, the Pledgors sought to introduce investors into the business of the Group.  The 3^rd and 4^th Defendants (hereinafter referred to as the “Investor(s)” or “Pledgee(s)”, as may be appropriate), being corporate vehicles of two private equity funds, agreed to invest about US$61 million.  This was done by way of a complicated series of corporate restructuring and share acquisitions pursuant to a suite of “Transaction Documents”, including in particular (i) an Investor Rights Agreement dated 1 April 2015 (“IRA”), and (ii) the Pledges, whereby the 3^rd Defendant, through a special purpose vehicle (Scenery Sharp Investment Ltd, “SPV”), became an indirect shareholder, and the 4^th Defendant became a shareholder, of the Company, together with the Pledgors (who held their interests in the Company through SRO). 

7.  Pausing here, it may be noted that the Pledgors’ position is that, in order to determine the validity of the Pledges, it is not necessary to go into the details of the Transaction Documents, other than the Pledges and the IRA (see paragraph 5(3)(iii) of Mr Charles Sussex SC’s Skeleton Submissions dated 6 December 2017). 

8.  The IRA was entered into amongst the Pledgors, SRO, the Investors, the SPV and the Company.  It contains various provisions which confer rights on the Investors and also governs the rights and obligations of the Pledgors and the Investors in the operation and management of the Company. 

9.  The IRA contains, inter alia, the following provisions:-

(1) Clause 3.1 (Restrictions on Transfers of Equity Securities), prohibiting the “Founders” (defined to mean the Pledgors and SRO) from selling or pledging or granting any security interest in any shares in the “Group Members” (defined to include the Company);

(2) Clause 5.4 (Reserved Matters), providing that certain “reserved matters”, which include (under sub-paragraph (f) of Schedule 1 to the IRA) the pledging or charging of shares in the Company, cannot be done without the prior approval or consent of the Investors;

(3) Clause 8.1 (Profit Guarantee), providing that if the profits of the Company shall fall below a certain fixed level for the fiscal years of 2015 and 2016, the Founders would be required to make certain special payments to the Investors (as calculated by an agreed formula);

(4) Clause 8.8 (Founder Guarantee; Share Pledge Agreements), under which the Founders guarantee the performance of all their obligations and liabilities under the IRA, and agree to pay on demand any amounts due and payable by any Founder thereunder; and

(5) Clause 11.1 (Effective Date; Termination), providing that the IRA shall terminate: (i) with respect to any shareholder of the Company, when it no longer holds any shares in the Company, (ii) by agreement of all the parties thereto, or (iii) upon the closing of an “IPO” (defined to mean the Company’s initial public offering on a Stock Exchange), save certain excepted clauses. 

10.  The Pledges were, and were required to be, executed concurrently with the IRA (Clause 9.9 thereof and paragraph 1(e) and (g) of Schedule 2 thereto). 

(1) The 1^st Pledge was entered into amongst (i) the Pledgors, (ii) SRO, and (iii) the 3^rd Defendant (as Pledgee) in respect of the Pledgors’ 54% shareholding interest in SRO. 

(2) The 2^nd Pledge was entered into amongst (i) the Pledgors, (ii) SRO, and (iii) the 4^th Defendant (as Pledgee) in respect of the Pledgors’ 46% shareholding interest in SRO. 

11.  In the Pledges:-

(1) the expression “Obligors” is defined to mean the Pledgors, SRO, the SPV and the Company;

(2) the expression “Pledged Shares” is defined to mean the Pledgors’ shares in SRO; and

(3) the expression “Pledged Collateral” is defined to include the Pledged Shares, dividends, distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, or in exchange for, the Pledged Shares, and all proceeds of the foregoing. 

12.  Each of the Pledges contains, inter alia, the following provisions:-

(1) Clause 3.1, under which the Pledgors covenant with the Pledgee to pay on demand and fully comply with all of the “Secured Obligations”, which expression is defined under Clause 1.8 to mean “all present and future obligations and liabilities of the Obligors to the Pledgee under the relevant Transaction Documents”;

(2) Clause 3.2(a), under which each of the Pledgors, as legal and beneficial owner and as continuing security for the payment and discharge of all Secured Obligations, mortgages and agrees to mortgage, by way of first mortgage all the Pledged Shares in SRO in favour of the Pledgee;

(3) Clause 12.1(a), under which the Pledgee may appoint a receiver if the security created by the Pledge has become enforceable upon occurrence of an “Event of Default”, which expression is defined under Section 7.1 to mean any default of any of the Secured Obligations;

(4) Clause 19.1, which provides that the security created by the Pledge is a continuing security and will extend to the ultimate balance of the Secured Obligations regardless of any intermediate payment or discharge in whole or in part;

(5) Clause 20.2, which provides that the Pledge shall be terminated upon “the satisfactory performance (in the judgment of the Pledgee) by each Obligors of its respective obligations under the Transaction Documents and the termination thereof, or as mutually agreed by the Pledgee and all Pledgors”; and

(6) Clause 20.3, which provides that upon termination of the Pledge, the Pledgee will upon written instruction of the Pledgors release the security interest created thereunder. 

13.  In late 2015, two more investors, China Merchant Capital (“CMC”) and the Huai An County Government (“Huai An”), were brought into the Company.  As a result, the Company received investments to the tune of about RMB540 million in total, and the current shareholding structure of the Company is as follows:-

Shareholder	Percentage Shareholding (approximately)
Pledgors (through SRO)	29.65%
3rd Defendant (through the SPV)	25.07%
4th Defendant	21.27%
Huai An County Government entity	9.20%
CMC entity	3.79%
Well Master (China) Ltd, owned by 1st Plaintiff’s daughter	8.92%
2 other minority shareholders	2.09%

14.  According to the Investors, within a year of their investment, the Pledgors (who remained in control of the Company) began to commit breaches of the Transaction Documents (in particular the IRA).  By a letter dated 8 August 2017 from King & Wood Mallesons to the Pledgors and SRO, the Investors alleged that there were the following instances of breaches of the Transaction Documents and gave them 5 days to rectify those breaches:-

(1) Clauses 3.1(a) and 5.4 of the IRA and Clause 88.13 of the Articles of Association of the Company: in respect of an alleged pledge of SRO’s shares in the Company to Shanghai Tongde Industrial Co Ltd;

(2) Clause 5.7(b) and (c) of the IRA: in respect of an alleged failure to obtain directors’ insurance and keyman insurance;

(3) Clause 5.3(a) of the IRA and Clause 94 of the Articles of Association of the Company: in respect of an alleged failure to hold board meetings once every calendar quarter;

(4) Clause 5.5 of the IRA: in respect of an alleged failure to appoint a successor to the CFO who resigned in April 2016; and

(5) Clause 9.6(b) of the IRA: in respect of an alleged failure to provide environmental health and safety reports. 

The above provisions of the IRA shall hereinafter be referred to as the “Impugned Provisions”. 

15.  For the present purpose, it is not necessary to go further into the details of the alleged breaches because the issue to be determined is not whether there have been breaches of the Transaction Documents such as would entitle the Pledgees to appoint the Receivers, but whether the Pledges are legally invalid. 

16.  The Investors/Pledgees say that the aforesaid breaches were not rectified despite repeated demands.  Accordingly, on 14 August 2017, they appointed the 1^st and 2^nd Defendants as “Receivers” over the Pledged Shares. 

17.  On 29 September 2017, the Pledgors commenced the present action by way of Originating Summons seeking, inter alia, a declaration that the Pledges are null and void, or are otherwise invalid and/or ineffective (paragraph 1). 

18.  As earlier mentioned, by the Order of Mr Justice G Lam dated 6 November 2017, paragraph 1 of the Originating Summons was to be heard and determined first.  The hearing took place before me on 11 December 2017. 

PRINCIPLES AGAINST IRREDEEMABLE MORTGAGE, OR CLOGGING OR FETTERING OF THE EQUITABLE RIGHT TO REDEEM

19.  My attention has been drawn to a number of authorities relating to the principles against irredeemable mortgage, or the clogging or fettering of the equitable right to redeem.  The following relevant principles can, I believe, be derived from those authorities. 

20.  First, a mortgage cannot be made irredeemable, and a provision to that effect is void.  This principle is expressed in the maxim, “Once a mortgage always a mortgage” (see Santley v Wilde [1899] 2 Ch 474[1], at 474-475 per Lindley MR; Noakes v Rice [1902] AC 24, at 32-33 per Lord Davey).  For this purpose, there is no difference between a provision forbidding redemption altogether and a provision rendering redemption nugatory for all practical purposes (see, for example, Fairclough v Swan Brewery Company Limited [1912] AC 565, at 569 per Lord MacNaghten, where a mortgage of a lease for 20 years provided that without the mortgagee’s consent the mortgage debt should not be wholly paid off till a date within 6 weeks of the expiration of the lease). 

21.  Second, the mortgagee may validly reserve to himself a collateral advantage outside the mortgage contract provided that such collateral advantage is not (i) unfair and unconscionable, (ii) in the nature of a penalty clogging the equitable right to redeem, or (iii) inconsistent with or repugnant to the contractual and equitable right to redeem (see Santley v Wilde, at 476 per Lindley MR, 478 per Sir F H Jeune, and 479 per Romer LJ; Noakes v Rice, at 33 per Lord Davey; Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25, at 56 and 60-61 per Lord Parker of Waddington). 

22.  Third, a provision or stipulation which will have the effect of clogging or fettering the equitable right to redeem is void. This principle has been said to be a corollary from the first (see Noakes v Rice, at 33 - 34 per Lord Davey).  In Kreglinger v New Patagonia Meat and Cold Storage Co Ltd, at 47 - 48, Lord Parker explained this principle as follows –

“Taking the simple case of a mortgage by way of conveyance with a proviso for reconveyance on payment of a sum of money upon a specified date, two events might happen. The mortgagor might pay the money on the specified date, in which case equity would specifically perform the contract for reconveyance. On the other hand, the mortgagor might fail to pay the money on the date specified for that purpose. In this case the property conveyed became at law an absolute interest in the mortgagee. Equity, however, did not treat time as of the essence of the transaction, and hence on failure to exercise what may be called the contractual right to redeem there arose an equity to redeem, notwithstanding the specified date had passed. Till this date had passed there was no equity to redeem, and a bill either to redeem or foreclose would have been demurrable. The equity to redeem, which arises on failure to exercise the contractual right of redemption, must be carefully distinguished from the equitable estate, which, from the first, remains in the mortgagor, and is sometimes referred to as an equity of redemption.

Now if, as was not infrequently the case, such a legal mortgage as above described contained a further stipulation that if default were made in payment of the money secured on the date specified the mortgagor should not exercise his equitable right to redeem, or should only exercise it as to part of the mortgaged property, or on payment of some additional sum or performance of some additional condition, such stipulation was always regarded in equity as a penal clause against which relief would be given. This is the principle underlying the rule against fetters or clogs on the equity of redemption. The rule may be stated thus: The equity which arises on failure to exercise the contractual right cannot be fettered or clogged by any stipulation contained in the mortgage or entered into as part of the mortgage transaction.”

23.  Fourth, it is primarily a question of fact whether a collateral advantage amounts to a clog or fetter on the equitable right to redeem.  The focus of the inquiry is whether the collateral advantage is in substance a term of the mortgage which cuts down on the equitable right to redeem, or a bargain outside and clear of the mortgage.  As explained by Viscount Haldane LC in Kreglinger v New Patagonia Meat and Cold Storage Co Ltd, at 38:-

“My Lords, the question in the present case is whether the right to redeem has been interfered with. And this must, for the reasons to which I have adverted in considering the history of the doctrine of equity, depend on the answer to a question which is primarily one of fact. What was the true character of the transaction? Did the appellants make a bargain such that the right to redeem was cut down, or did they simply stipulate for a collateral undertaking, outside and clear of the mortgage, which would give them an exclusive option of purchase of the sheepskins of the respondents? The question is in my opinion not whether the two contracts were made at the same moment and evidenced by the same instrument, but whether they were in substance a single and undivided contract or two distinct contracts….

What is vital in the appeal now under consideration is to classify accurately the transaction between the parties. What we have to do is to ascertain from scrutiny of the circumstances whether there has really been an attempt to effect a mortgage with a provision preventing redemption of what was pledged merely as security for payment of the amount of the debt and any charges besides that may legitimately be added…

To render it invalid the bargain must, when its substance is examined, turn out to have formed part of the terms of the mortgage and to have really cut down a true right of redemption.”

24.  Lastly, an unconscionable term clogging or fettering the equitable right to redeem is void and of no effect, and not just voidable so that an application to avoid the term has to be made by the mortgagor (see Brighton & Hove CC v Audus [2010] 1 All ER (Comm) 343, at paragraph 49 per Morgan J). 

THE PLEDGES ARE NOT IRREDEEMABLE OR CONTAIN PROVISIONS REPUGNANT TO THE EQUITABLE RIGHT TO REDEEM

25.  By way of preliminary observation, although the instruments in question are called “Pledges”, it is common ground that they should be treated as mortgages for the present purpose. 

26.  Originally, in paragraph 15 of Mr Sussex’s Skeleton Submissions, he put the Pledgors’ case on the invalidity of the Pledges on the following bases:-

(1) The Pledges are irredeemable. 

(2) Even if the Pledges are considered redeemable, the Impugned Provisions constituted a clog on the Pledgors’ equity of redemption and hence should be considered void and of no effect. 

27.  However, at the hearing on 11 December 2017, Mr Sussex made it clear that the Pledgors are not relying the principle against the clogging or fettering of the equitable right to redeem in the present challenge to the validity of the Pledges. 

28.  The Pledgors’ case, according to Mr Sussex, is that the Pledges are, simply, irredeemable, and therefore fall foul of the first principle mentioned above. 

29.  The Pledges do not say that they are irredeemable, which would be unusual in any event.  On the contrary, there are express provisions for redemption in the Pledges.  In particular, Clauses 20.2 and 20.3 provide for termination of the Pledges and release of the security interest created thereunder. 

30.  Mr Sussex argues, however, that the Pledges are irredeemable because complete performance of the Secured Obligations (such as would entitle the Pledgors to exercise the right of redemption) is not possible under the Pledges and the Transaction Documents.  For the purpose of this argument, he relies essentially on two particular features of obligations secured by the Pledges:-

(1) Some of the obligations under the IRA (forming part of the Secured Obligations) are non-monetary and will survive notwithstanding the termination of the IRA.  The existence of these continuing obligations means that the Pledges cannot be terminated. 

(2) The extremely wide scope of the Secured Obligations (in particular, the requirement that performance be to the satisfaction of the Pledgees), by definition, prevents the exercise of the right of redemption by the Pledgors. 

Accordingly, there is no viable pathway for the Pledgors to completely perform the Secured Obligations due to their non-monetary and continuing nature, such that the right of redemption can be exercised in the Pledgors’ favour (see paragraph 31 of Mr Sussex’s Skeleton Submissions). 

(i)   Non-monetary continuing obligations

31.  In respect of the first matter relied upon by Mr Sussex to contend that the Pledges are not redeemable, two questions arise for consideration:-

(1) whether, as a matter of principle, a mortgage can validly secure non-monetary obligations for an indefinite, or uncertain, period; and

(2) whether, on the facts of this case, the existence of the non-monetary continuing obligations means that the Pledges cannot be terminated. 

32.  On the point of principle mentioned in paragraph 31(1) above, Mr Sussex does not dispute that, as a general proposition, a mortgage can validly secure non-monetary obligations.  What is objectionable in respect of the Pledges, according to him, is that they purport to secure non-monetary obligations for an “indefinite period” (see paragraph 42 of Mr Sussex’s Skeleton Submissions). 

33.  However, as rightly submitted by Ms Sit, a mortgage may be validly irredeemable for an uncertain period, eg, when it is made to secure an annuity, or as in an indemnity against future liabilities, or for any other object not capable of immediate pecuniary valuation (see Fisher & Lightwood’s Law of Mortgage, 14^th Ed, paragraph 47.6, citing the judgment of Lord Cranworth LC in Fleming v Self (1854) 3 De GM & G 997 in support of such proposition).  As pointed out in Cousins on The Law of Mortgages, 3^rd Ed, at paragraph 30-16, in such a case, redemption is necessarily suspended for an uncertain period, but the mortgage is not thereby rendered invalid. 

34.  In Richards v The Commercial Bank of Australia (1971) 18 FLR 95 (also cited by Fisher & Lightwood), Fox J sitting in the Supreme Court of Australian Capital Territory did not, apparently, consider a mortgage objectionable merely because it sought to have the mortgagor’s right of redemption postponed indefinitely so that the security could cover liabilities which were contingent only, provided that such result was provided for unambiguously.  At 99, the learned judge said: “it seems now to be the law that the extended postponement of the contractual right to redeem is not invalidating where there is no oppressive or unconscionable conduct, and no clog on the equity of redemption.” 

35.  In Re Rudd & Son Ltd (1986) 2 BCC 98, where mortgages were given by two companies (being partners in a firm of builders) to a bank which purported to secure contingent liabilities (namely, counter-indemnities given by the firm to the bank in respect of performance bonds given by the bank to a local authority in connection with roadworks to be carried out by the firm), Nicholls J (as he then was sitting in the Court of Appeal), stated the following at 961:

“To my mind it is abundantly clear that the security was intended to embrace these contingent liabilities …

The consequence of this construction is that the mortgagor may find itself unable to redeem its property for an indefinite period, until it becomes known whether a contingent liability will become a present liability or not.  So be it.  I can see nothing surp;rising about such a conclusion.”

36.  It is obvious that Nicholl J did not consider a mortgage which purported to secure contingent liabilities rendering it irredeemable for an indefinite period objectionable. 

37.  In my view, once it is accepted, as a matter of principle, that a mortgage may secure non-monetary obligations, it is not objectionable merely because the mortgage secures such obligations for an uncertain (and, in that sense, indefinite) period. 

38.  On the point of facts mentioned in paragraph 31(2) above, Mr Sussex refers to and relies upon two categories of obligations under the IRA which will survive notwithstanding the termination of the IRA, namely:-

(1) obligations under Clause 10 relating to “Confidentiality and Restrictions on Announcements”, which are said to be substantive obligations that still need to be performed after the termination of the IRA, by virtue of Clause 11.2 (see paragraph 31(1) of Mr Sussex’s Skeleton Submissions); and

(2) various obligations under Clause 5 relating to “Corporate Governance” of the Company (eg, number and composition of the board of directors, committees of the board, quorum for board meetings, audit reports, and insurance for indemnification of Investor Directors), which will continue after the termination of the IRA until the Investor’s shareholding in the Company is less than 5%, by virtue of Clauses 5.8 and 11.1 (see paragraph 31(2) of Mr Sussex’s Skeleton Submissions). 

39.  Although these obligations would survive and continue to be binding on the Pledgors after the termination of the IRA, by definition, they would not prevent the termination of the IRA.  Neither would they prevent the termination of the Pledges.  This is because, under Clause 20.2 of each Pledge, it shall be terminated upon “the satisfactory performance (in the judgment of the Pledgee) by each Obligor of its respective obligations under Transaction Documents and the termination thereof …”.  In other words, two conditions have to be satisfied to terminate the Pledge: (i) the satisfactory performance by the Obligors of their obligations under the IRA[2] (leaving aside for the moment the requirement that such performance must be satisfactory “in the judgment of the Pledgee”, which I shall consider below), and (ii) the termination of the IRA. 

40.  It seems to me to be clear, upon the true construction of Clause 20.2, that (i) the question of “satisfactory performance” of the IRA must be judged as at the date of its termination; and (ii) the “termination” referred to in that cause is a reference to the termination of the IRA and not the termination of all obligations under that agreement.  In other words, if, on the date of the termination of the IRA in accordance with Clause 11.1 thereof, there has been satisfactory performance by the Obligors of their obligations thereunder, the two conditions for the termination of the Pledges would be met and the Pledges would be terminated.  The fact that there are surviving obligations continuing beyond the termination of the IRA to be performed or observed by the Pledgors means just that.  Even if, for the sake of argument, the Pledgors should act in breach of those continuing obligations after the termination of the IRA, such breach would not revive the Pledges, or retrospectively nullify their termination.  In such a situation, the Pledgors may well be liable to the Investors for breach of the IRA, but the termination of the Pledges would not be affected.  

(ii)   Performance to the satisfaction of Pledgees

41.  As earlier mentioned, Clause 20.2 of each Pledge requires, as a condition for its termination, “satisfactory performance (in the judgment of the Pledgee)” of the Obligors’ obligations under the Transaction Documents. 

42.  According to Mr Sussex, such degree of satisfaction is not qualified or otherwise controlled by the Pledges.  Thus, even if the Pledgors discharge their obligations under the IRA, the Pledgees could reject performance.  In other words, in the absence of mutual agreement between the parties, even if the obligations under the IRA could somehow be completely performed and the IRA was discharged by termination, the Pledgees could still refuse the Pledgors’ redemption of the Pledged Collateral (see paragraph 31(5) and (6) of Mr Sussex’s Skeleton Submissions).

43.  I do not accept this view of the effect of Clause 20.2.  Although, on the face of that clause, the Pledgee’s “judgment” on whether the performance of any relevant obligation is satisfactory appears to be uncontrolled or unqualified, the law would impose an implied obligation on the Pledgee to make such judgment honestly and in good faith, and not arbitrarily, capriciously, or unreasonably (see Tadjudin Sunny v Bank of America, National Association, CACV 12/2015, 20 May 2016, at paragraphs 46 to 55).  Should any dispute arise as to whether the Pledgee is entitled to reject as unsatisfactory the performance of any relevant obligation under Clause 20.2, the court will have to determine such dispute having regard to (inter alia) the commercial nature, object and purpose of the transaction between the parties, namely, investments by private equity funders in a private company with the ultimate aim of bringing about the IPO of the company.  It may be that in such an inquiry, the balance is tilted in favour of the Pledgee, but that is the bargain which the Pledgors freely entered into. In short, I do not accept that the Pledgees could refuse the Pledgors’ redemption of the Pledged Collateral if the obligations of the Obligors under the IRA have indeed been satisfactorily performed. 

44.  For the above reasons, I do not consider that the nature and effect of the Secured Obligations is such as to make the Pledges irredeemable as contended by the Pledgors. 

45.  For the sake of completeness, I should add that I also do not consider the Impugned Provisions to constitute a clog or fetter on the Pledgors’ equity of redemption, or are repugnant to or inconsistent with the equity of redemption (this being the Pledgors’ original alternative case mentioned in paragraph 26(2) above).  Although some of these provisions may continue to be binding on the Pledgors after the termination of the IRA, they are in the nature of collateral advantages outside and clear of the Pledges which do not cut down on the equitable right to redeem.  There is no suggestion that the Pledgors were induced to enter into the Transaction Documents as a result of any unfair or unconscionable conduct on the part of the Pledgees, or that the Impugned Provisions are unfair or unconscionable, or penal in nature. It is a strong thing to strike down as invalid contractual provisions in arms-length transactions freely entered into between commercial parties, on the basis that they amount to an impermissible clog on the equitable right to redeem (see Knightsbridge Estates Trust Ltd v Byrne [1939] Ch 441, at 454, 457-458).  No circumstances exist here which would justify the court taking such a strong stance against the Impugned Provisions.  They are, in my view, binding on, and enforceable against, the Pledgors. 

DISPOSITION

46.  Paragraph 1 of the Originating Summons is dismissed.  I shall leave it to the parties to agree on how the rest of the Originating Summons and the Plaintiffs’ summons for interlocutory injunction dated 29 September 2017 should be disposed of in light of the present judgment, with liberty to the parties to apply for further directions where necessary.

47.  The Plaintiffs shall pay the 1^st to 4^th Defendants’ costs of the hearing on 11 December 2017, to be taxed if not agreed on an indemnity basis (in the case of the 1^st and 2^nd Defendants because they are deemed to be the Plaintiffs’ agents under Clause 12.3 of the Pledges, and in the case of the 3^rd and 4^th Defendants by virtue of Clauses 10.2 and 28 of the Pledges), with certificate for 2 counsel. 

48.  Lastly, it remains for me to thank counsel for their assistance rendered to the court.