XCHRX ANGEL SECURITIES LTD. v. MAKINDO SECURITIES (HK) LTD.

HCA810/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.810 OF 2000

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J U D G M E N T

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1. This is an appeal from the master whereby the master dismissed the application for summary judgment and granted unconditional leave to the defendant to defend the action.

2. The action had been brought by the plaintiff who were the owners of 165,000,000 shares in China United Holdings Limited and who entered into a Securities Lending Agreement with Bao Li Da Incorporated ("Bao Li Da"). The Securities Lending Agreement makes it very clear the obligations of the lender, i.e. the plaintiff. Clause 3.01 is of particular relevance, it says :

"The Lender shall deliver the Borrowed Securities and the bought and sold note and instrument of transfer relating to the transfer of such Securities on the Delivery Date in accordance with the agreed Borrowing Request ..."

And the evidence suggests very clearly that this was done. That the shares had been transferred on the instructions of the plaintiff to its own brokers. The letter instructing the brokers of the plaintiff to transfer those shares to the defendant is at p.93 of the bundle, the defendant being the broker of Bao Li Da. As far as I can see, once that is done and pursuant to the Securities Lending Agreement, Bao Li Da could do anything with the shares. Bao Li Da's obligation under the Securities Lending Agreement was either to return the shares or to pay for its value after one year. But, in the meantime, Bao Li Da could do whatever it liked with those shares and the broker of Bao Li Da, i.e. the defendant, of course, would be able to deal with the shares freely and this is apparently what happened.

3. The complaint of the plaintiff is that the defendant had no business in dealing with the shares that had been transferred to it. I disagree. If the instrument of transfer had been executed - everything points to it having been done pursuant to Clause 3.01 - then there is nothing to stop the defendant from disposing of the shares or dealing with it as was intended by the Securities Lending Agreement. There is really no basis that the plaintiff could ask the court to grant summary judgment in a case such as this. I think the master was quite right to give unconditional leave to defend.

4. Mr Lawrence Ng, in his very able skeleton submissions, had dealt with a large number of points. They are all correct and I would not need to go into the details of these points. I think there is really no substance and no hope of a chance of the plaintiff succeeding on this summary judgment application. The appeal by the plaintiff, therefore, must be dismissed with costs. I would propose to ask the parties if they are ready to assess the costs by way of gross sum assessment.