LAM PING WAN AND ANOTHER v. IP LAM ON

HCA 12791/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12791 OF 1999

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J U D G M E N T

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1. The Defendant applies for a release of the undertakings given by him to the Court and as contained in the order of Findlay J. dated 13 August 1999. This application is made on short notice and on an urgent basis.

2. The background to that order is that on 9 August 1999 Findlay J. granted the 1st and 2nd Plaintiffs an ex parte Mareva injunction against the Defendant. The claim by the 1st Plaintiff is on an oral agreement made on 15 December 1998 with the Defendant for the sale of 30 million shares in a public company, Easy Concepts International Holdings Limited ("Easy Concepts"). On the 1st Plaintiff's case, the Defendant did not have to pay for the shares on delivery of the share certificates. He was given six months to pay. There was a condition that until he paid for the same he was not to sell or transfer any part of the 30 million shares to any third party. There was also a condition that if he should fail to fully pay the purchase price the Defendant should return the shares to the 1st Plaintiff together with $9,000,000 as agreed compensation. The 2nd Plaintiff is the stockbroker which effected the sale to the Defendant and its claim is that the Defendant agreed to pay the 2nd Plaintiff the purchase price within six months of the Defendant's receipt of the shares. On 2 August 1999 the Defendant sold 3.2 million shares to a third party. He has not paid the purchase price for the 30 million shares. The 1st Plaintiff's claims the return of the 26.8 million unsold shares and the proceeds of sale of the 3.2 million shares together with damages.

3. The Mareva injunction was obtained on 9 August 1999. On 13 August 1999 the Defendant gave certain undertakings to the Court as a result of which the Mareva injunction was discharged. The undertakings given are as follows :

"（i） The Defendant undertakes to this Honourable Court that he shall forthwith instruct and direct Worldwide Brokerage Limited to release the balance of the proceeds of sale of the 3,200,000 shares of Easy Concept International Holdings Ltd. (after deduction of stamp duties and brokerage charges) to Messrs. Chan Lau & Wai, Solicitors.

（ii） Messrs. Chan Lau & Wai do undertake to this Honourable Court that upon receipt of the said balance of proceeds of sale from Worldwide Brokerage Limited, they shall hold the same in an interest bearing clients' account and shall not release the same to any person unless directed by this Honourable Court.

（iii） The Defendant undertakes to this Honourable Court that he shall forthwith serve a written instruction to the China and South Sea Bank Ltd. instructing the bank not to allow any person, including the Defendant, to sell, withdraw, charge or howsoever dispose of the 26,800,000 shares of Easy Concepts International Holdings Ltd. held in custody by the Bank in Securities Account No. 026-709-63-07389-4 unless and until the Bank is provided with a sealed copy of a Court Order releasing the Defendant from the undertakings herein.

（iv） The Defendant undertakes to this Honourable Court that he shall not take any step to obtain the release of the said proceeds of sale from Messrs. Chan Lau & Wai and shall not take any step to sell, withdraw, charge or howsoever dispose of the 26,800,000 shares of Easy Concept International Holdings Ltd. in the custody of the China and South Sea Bank Ltd. under account no. 026-709-63-07389-4 until after Messrs. Chan Lau & Wai and the Defendant are released by the Court from the undertakings made herein."

Messrs. Chan Lau & Wai were the solicitors for the Defendant at the time.

4. In seeking a release of the undertakings, Mr. Whitehead, for the Defendant, submitted that he has to show a change of circumstances from the time the undertakings were given. He submitted that the circumstances when the undertakings were given have considerably changed. He relied on three matters.

5. The first matter he relied on was that far from hiding from the Plaintiffs as was alleged in the affirmation of Ng Kei Choy affirmed on 7 August 1999 in support of the Mareva injunction, the Defendant has taken up a responsible role in these proceedings. He has filed a Defence and is about to file a counterclaim. In other words, the change of circumstance relied on is that far from hiding he is taking an active role in these proceedings. It has to be remembered that when the undertakings, as set out in the order of Findlay J. made on 13 August 1999, were given by the Defendant he knew full well what allegations were made against him by the Plaintiffs when applying for and obtaining the Mareva injunction. I do not see how it can be said that because he is now taking a more active role in the proceedings, that amounts to a material change in circumstances.

6. The second matter relied on was that there is now no longer a good arguable case to justify the grant of a Mareva injunction. At the time the undertakings were given, a Defence had not been filed. The 1st Plaintiff subsequently brought Order 14 proceedings against the Defendant. The Defendant's case is that he does not know the 1st Plaintiff and he never made an agreement with him. His case is that Mr Mathew Koon, Chairman of Easy Concepts was indebted to the Defendant for $30,000,000 and being unable to repay the debt to the Defendant, there was an agreement whereby 30 million shares in Easy Concepts were given to the Defendant in repayment of the debt. These shares were in an account with the 2nd Plaintiff and it was those 30 million shares belonging to Mr Koon which were transferred to the Defendant.

7. The 1st Plaintiff succeeded in its application for summary judgment before a Master and an order was made that the Defendant do transfer and deliver the 26.8 million shares of Easy Concepts to the 1st Plaintiff, pay the proceeds of sale of the 3.2 million shares to the 1st Plaintiff with damages to be assessed. There was an appeal from the decision of the Master and the matter came before me. I reversed the Master's order and gave unconditional leave to the Defendant to defend. As I said in my judgment at p.5 :

"As I have said, clearly there are disputes of fact between the parties. The matter cannot be resolved on affidavit evidence alone. There will have to be discovery and cross-examination at trial to determine the issues that have been raised. I am satisfied that the Defendant should be given unconditional leave to defend."

8. The material placed before me today includes an affirmation from Mathew Koon who denied that he ever owed the Defendant any money or ever transferred the 30 million shares to him. Sir John Swaine, for the Plaintiffs, submitted that with this evidence from Mr Koon the case against the Defendant is overwhelming. In my view, however, the matter cannot be tried on affidavit evidence alone. Clearly, there will have to be a trial. However, I am not convinced that the second matter raised amounts to a material change in circumstances justifying a release of the undertakings.

9. The third matter raised is the change in the value of the shares in Easy Concepts. The shares of Easy Concepts have been trading at about $1 from August 1999 to January 2000. In January 2000 the shares dropped touching a low of 34￠. Then in February 2000 things started to pick up and on 18 February 2000 the shares jumped to about $10. This was no doubt as a result of a public notice published on 18 February 2000 for a proposed public offer for the shares. There is a proposed shareholder restructuring of the company which involves the acquisition of shares by, inter alia, subsidiaries of the well-known companies China Telecom HK and News Corporation. Since then, however, the shares have been volatile. On 28 March 2000 the closing price was $6.90. On 29 March 2000 the opening price was $6.80 but fluctuated during the day with a low of $3.00. I am told that yesterday they closed at $4.00.

10. It must be remembered that the 1st Plaintiff claims the beneficial ownership of the shares and I am told that he does not wish to sell the remaining 26.8 million shares, the subject matter of the action. The Defendant also claims ownership of the same shares but wishes to sell the same in view of the change in value of the shares. The Defendant is unable to do so because of the undertakings given to the Court. In my judgment, the status quo should be maintained and the parties should proceed to trial as soon as possible. For this purpose, I am prepared to make an order for a speedy trial if the parties so wish. However, I do not consider that the change in the value of the shares is a material change in circumstances justifying the release of the undertakings.

11. I have already made an order today by consent that the order of Findlay J. made on 13 August 1999 be amended under Order 20; r.11 R.H.C. to incorporate the Plaintiffs' cross-undertaking in damages. Such was omitted in the order of 13 August 1999 but was, in my view, implied anyway. I am of the view, however, that the cross-undertaking in damages should be fortified. In the short time available because of the urgency of the matter, the 1st Plaintiff has deposed that he owns another 5,954,000 shares in Easy Concepts and I am told by Sir John Swaine that the 1st Plaintiff is prepared to provide the same as security for his cross-undertaking in damages. I am also told that in addition thereto the 1st Plaintiff is prepared to pay into Court a sum of $5 million as further security. Sir John Swaine submitted that the 2nd Plaintiff which is a stockbroking company has, on the evidence, a paid-up capital of $12 m. and should not be required to provide fortification.

12. The matter has been brought before me today on an urgent basis. I observe that the Defendant does not actually, by its summons, seek fortification of the cross-undertaking in damages. However, I consider that it is appropriate to fortify the cross-undertaking in damages and I accept Sir John Swaine's proposals that the 1st Plaintiff should provide 5,954,000 shares of Easy Concepts as security and pay into Court a sum of $5 million as well. I am also persuaded that it is not necessary to seek fortification from the 2nd Plaintiff.

13. I should add that if the 5,954,000 shares provided as security should substantially diminish in value because of a fall in the price of the shares before trial, the Defendant should be at liberty to apply for further fortification of the cross-undertaking in damages.

14. I will hear Counsel on where the 5,954,000 shares should be deposited and what order I should make.