LEADER HONOUR LTD v. FANLING PROPERTY CO LTD

DCCJ3214 & 5342/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3214 OF 2015

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IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5342 OF 2015

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DECISION

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1.  There are 3 summonses before the court:-

(i) the defendant’s summons in DCCJ 5342/2015 to discharge the injunction order made on 29 June 2015 and to withdraw the sum of HK$725,800 paid into court on 4 July 2015 pursuant to the Injunction Order (the “Discharge Summons”);

(ii) the defendant’s summons to strike-out the statement of claim under DCCJ 5342/2015 (the “Strike-Out Summons”); and

(iii) the plaintiff’s summons to consolidate DCCJ 3214/2015 and DCCJ 5342/2015 (the “Consolidation Summons”)

2.  At the end of the hearing, the parties have agreed that the Strike-Out Summons and the Consolidation Summons could be dealt with by way of a consent order.  There was thus no need for the court to deal with the Strike-Out Summons and the Consolidation Summons.

Background

3.  The plaintiff obtained an ex parte injunction against the defendant.  The Injunction Order is dated 29 June 2015 (the “Injunction”).

4.  Under the paragraph (2) of Schedule 2 of the Injunction, the plaintiff had undertaken to serve on the defendant the writ of summons as soon as practicable.

5.  On 4 July 2015, the defendant had made a payment of HK$725,800 into court on a without admission of liability basis.  This amount is the entire amount of the plaintiff’s claim and the amount of assets restricted as set out in the Injunction.

6.  Despite the defendant having issued 2 reminders by letter (dated 6 July 2015 and 14 September 2015 respectively), the plaintiff failed to serve and file any writ of summons until 25 November 2015.

7.  The plaintiff eventually issued and served a Statement of Claim dated 25 November 2015, which the defendant says is identical to a Counterclaim already filed on 24 August 2015 by the plaintiff under DCCJ 3214/2015 (the “Previous Action”) (as a defendant in that case).

8.  The Previous Action was instituted by the defendant (as a plaintiff) against the plaintiff (as a defendant) on 13 July 2015, that is, about 2 weeks after the Injunction was granted.  The Previous Action concerns the same matters in dispute as in DCCJ 5342/2015.

Discharge of the injunction in DCCJ 5342/2015

9.  The defendant contends that by reason of the following, the Injunction ought to be discharged and that the defendant should be allowed to withdraw the amount previously paid into court by the defendant under the Injunction:-

(i)    the plaintiff has breached its undertaking to issue a writ as soon as practicable;

(ii)   there is material non-disclosure on the part of the plaintiff when it applied for the ex parte injunction;

(iii)  there is new evidence since the granting of the Injunction.

10.  Ms Tang for the plaintiff contends that the defendant’s voluntary payment into court is an agreement of the defendant to be bound by the Injunction and as such is the defendant’s decision not to dispute the granting of the Injunction.  Thus, Ms Tang submits that the defendant is not allowed to go back on its agreement.

11.  Ms Tang relies on the case of Emailgen Systems Corpn v Exclaimer Ltd and anor [2013] 1 WLR 2132.  In that case, the applicant obtained an ex parte injunction and froze the respondent’s assets.  At the inter partes hearing a consent order was approved staying the application for the freezing injunction on the respondent’s undertaking to provide security for damages until “agreement or further order”.  The respondent later applied to be released from the undertaking on the ground that the freezing injunction should not have been granted without notice.

12.  It was held that where a party chose not to seek an adjournment of an application for an interim injunction but accepted that it should be dealt with by his offering an undertaking until trial or further order, there had to be good cause, typically a significant change of circumstances or the discovery of some new fact before he could apply to modify or change the undertaking.  It was considered that on a true construction of the consent order the application for the freezing order had been disposed of by the undertaking.  It was held that therefore it was not open to the respondents to argue that the injunction ought never to have been granted, and the undertaking could therefore be discharged only for good cause, which had not been shown.

13.  In this case, the defendant has similarly, in its own words, chosen not to waste time and costs on arguing on the return date whether the injunction ought to be continued and instead focused on finding out the true merits of the case.

14.  When the defendant made the payment into court, what it had done effectively is replaced the injunction by providing the court an undertaking in terms corresponding to those of the Injunction. (§23.011, Commercial Injunctions, 5^th Ed, Steven Gee)  As such, the Injunction is no longer “in force”. 

15.  For all intents and purposes, the object of the Injunction, which was to restrain the disposal of assets by the defendant of up to HK$725,800, no longer exists.  In other words, the Injunction obtained by the plaintiff had been discharged because upon the defendant’s payment into court, there can no longer be any restriction on the defendant’s liability to dispose of its assets. 

16.  Therefore, contrary to Mr Tsui’s submission, the Injunction has already in fact been discharged upon the defendant’s payment into court despite the absence of a formal court order to that effect.

17.  This was in fact also the defendant’s stance when it was negotiating with the plaintiff on the wording of a Consent Summons to dispose of the return date hearing for the Injunction.  Referring to the plaintiff’s suggested wording in the draft Consent Summons of “The ex-parte Injunction Order made by His Honour Judge Stanley Chan dated 29 June 2015 be discharged” (the “Suggested Wording”), the defendant in a letter dated 6 July 2015 said: “Pursuant to the Order, the Order shall cease to have effect automatically upon our payment into court of the sum of HK$725,800 as provision for security.  Therefore paragraph 1 of your said 2^nd draft Consent Summons [the Suggested Wording] is unnecessary.”

18.  As such, it is unnecessary and misconceived for the defendant to apply for a discharge of the Injunction.  The application is therefore dismissed.

Withdrawal of payment made into court

19.  As to the application for withdrawal of the amount previously paid into court, the parties are in agreement on the applicable legal principles.  There is no dispute that good cause must be shown for a person to be released from an undertaking. 

20.  Teare J in the recent case of Todaysure Matthews Limited v Marketing Ways Services Limited ((2015 EWHC 64 (Comm)) referred to the principles set out in Chanel v Woolworth and Emailgen:-

“What is good cause will depend upon all the circumstances of the case though typically a change of circumstances or the discovery of some new fact will be required. A person will only be released from an undertaking if it would otherwise be unjust to hold him to his undertaking.

Although an order resulting from the court’s exercise of a discretion and a consent order resulting from the parties’ agreement are both orders of the court, a consent order has a feature which is lacking in an order which results from the court’s exercise of a discretion, namely, it is the product of careful negotiation and agreement between the parties themselves.  That additional factor is, it seems to me, relevant when considering whether it is just to set aside the order.  It is a factor in favour of holding the parties to their agreement; for it is in the public interest that parties should seek to resolve their differences themselves if they do so the court should seek to uphold their agreement.  That is why, it seems to me, that before a party may be released from an undertaking good cause must be established.”

21.  Mr Tsui submits that there is a change in circumstances justifying the withdrawal of payment into court because: (i) the plaintiff has breached its undertaking to issue a writ as soon as practicable; (ii) there is material non-disclosure on the part of the plaintiff when it applied for the ex parte injunction and (iii) there is new evidence.

22.  As set out in the case of Todaysure Matthews Limited, what the court needs to consider is whether these alleged change in circumstances would make it unjust to hold the defendant to its payment into court. 

The plaintiff’s claim

23.  In order to examine if this ground constitutes good cause, one must consider the plaintiff’s claim.

24.  The plaintiff contends that the defendant is a shelf company used by Mr Sum, its director, for the purposes of acquiring and holding a property.  It is a registered company in Hong Kong with a share capital of HK$1 and a mortgage/charge of HK$17,745,363.56.

25.  The plaintiff’s claim in summary is that an estate agent on behalf of the plaintiff had caused the defendant as the vendor and a Mr Lee as the purchaser to enter into a provisional sale and purchase agreement for a property.  After Mr Lee had signed the provisional sale and purchase agreement and before the same was passed to Ms Sum to sign it on behalf of the defendant, Mr Lee represented to Ms Wong of the plaintiff that he was not ready to go through with the transaction as he was unable to obtain a bank mortgage.  There is some dispute on when Ms Wong informed Ms Sum on this fact.  One way or another, Ms Sum still proceeded to sign the provisional sale and purchase agreement on behalf of the defendant.  However, the transaction did not go through because Mr Lee refused to complete. 

26.  The same property was eventually sold by the defendant as the vendor to another company belonging to Mr Lee as the purchaser as evidenced by a formal sale and purchase agreement dated 20 April 2015 (the “2^nd Transaction”). 

27.  The plaintiff contends that it is still entitled to the commission despite the change in the identity of the purchaser since the property sold is the same property and the provisional agreement provides that the purchaser be “Mr Lee or its designated company”.  As the new purchaser in the 2^nd Transaction is still a company designated by Mr Lee, the plaintiff says that the defendant and Mr Lee are still liable to pay her the commission as stipulated in the provisional sale and purchase agreement.

28.  As can be seen, the plaintiff’s claim is based on the eventual completion of the sale of the property in question.  The dispute is thus whether the plaintiff is entitled to the estate agent’s commission for the 2^nd Transaction based on the provisional sale and purchase agreement, albeit it was between different named parties. 

Delay in issuing writ

29.  The fact that the plaintiff has not issued a writ until about 4 months after obtaining the Injunction is regrettable as the defendant is deprived of the chance to know at the earliest instance what is the case and allegations that they are faced with.  However, as pointed out by Ms Tang, all along the defendant has been involved in the litigation under DCCJ 3214/2005 where numerous affidavits have been exchanged and allegations were made and responded to, and the plaintiff has set out its case in its Counterclaim. 

30.  As such, whilst it is undesirable that there was no confirmation from the plaintiff that it will rely on the Counterclaim as its statement of claim in DCCJ 5342/2015, that does not in my view make it unjust to hold the defendant to its payment into court.  There still exists a risk of dissipation as the defendant only has an issued capital of HK$1.  Mr Sum, the ultimate controller of the defendant resides in the UK. The plaintiff can easily be left without redress if Mr Sum decides to transfer the money to the UK.

Alleged material non-disclosure

31.  As to the submissions on material non-disclosure, Mr Tsui says that the plaintiff had wrongly represented to the court during the Injunction application on when Ms Wong of the plaintiff gave the provisional sale and purchase agreement signed by the purchaser for the defendant’s execution.  Mr Tsui argues that the plaintiff’s version of events has painted the defendant as unreasonable and would have influenced the judge when considering whether to grant the Injunction especially on the issue of risk of dissipation.

32.  Whether the defendant was unreasonable in executing the earlier provisional sale and purchase agreement is not relevant to whether the plaintiff is entitled to commission under the 2^nd Transaction.  I am of the view that the alleged non-disclosure is not material to the merits of the case and as such it does not make it unjust to hold the defendant to its agreement of payment into court.

New evidence

33.  Mr Tsui also submits that there is a change of circumstance due to a piece of new evidence.  The alleged new evidence is a letter dated 9 March 2015 where the plaintiff had asked Mr Lee to pay double commission for failing to complete the earlier sale and purchase of the property.  However, this letter was in fact already mentioned in paragraph 36 of the 1^st Affirmation of Ms Wong on behalf of the plaintiff dated 29 June 2015 (the day when the Injunction was applied for).  Although the letter was not exhibited, again, I am of the view that in any event, the content of the letter, which the defendant says shows that the plaintiff at that time was of the view that Mr Lee was at fault, is not relevant to the dispute of the parties.  I do not agree that it is a change of circumstance which makes it unjust to hold the defendant to its payment into court.

Decision

34.  Therefore, the Discharge Summons must be dismissed.  There shall be a costs order nisi that costs of the Discharge Summons be to the plaintiff, to be taxed if not agreed.

DCCJ 3214/2015

DCCJ 5342/2015