SA DEVELOPMENT LTD v. WING HANG BANK LTD

IN THE COURT OF APPEAL

1996, No. 190
(Civil)

- Headnote -

Mareva injunction - Mareva injunction operated in personam vis-à-vis the defendant and left a Bank mortgagee's rights of property unaffected - Surrender of possession of mortgaged property by defendant to the Bank mortgagee was not a dissipation of his assets in breach of the Mareva injunction - Application for leave to commit the officers of the Bank to prison for contempt of court was misconceived - The application also failed to identify the persons sought to be committed and was a nullity.

IN THE COURT OF APPEAL

1996, No. 190
(Civil)

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J U D G M E N T

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Litton, V.-P.:

Introduction

1. On 13 August 1996 the appellant (SA Development Ltd) took out an originating motion against the respondents - described as "The officers of the Wing Hang Bank, San Po Kong Branch" - for an order that they be committed to prison for contempt of court on the ground that they had wilfully disobeyed the terms of a Mareva injunction. The proceedings were instituted pursuant to leave given ex parte on 1 August by Keith J under Order 52 r2 of the Rules of the Supreme Court, Cap 4. Two days after the appellant had taken out their originating motion, that is to say, on 15 August, the bank itself, the Wing Hang Bank Ltd, took out a summons under Order 32 r6 for an order that the ex parte leave granted by Keith J be set aside. This summons was heard on 21 August 1996 by Yeung J who acceded to the Bank's application and discharged the ex parte order for leave. The appellant, being dissatisfied with the judge's order, now appeals to this court.

The underlying legal proceedings

2. The appellant (SA Development Ltd) is the plaintiff in High Court Action No. 84/96 in which it claimed against the defendant (Fair Fashion Company Limited) for $798,472.33 being the amount of two dishonoured cheques.

3. On 3 January 1996 Woo J granted a Mareva injunction in the appellant's favour restraining the defendant from disposing of or otherwise dealing with its assets save in so far as the assets exceeded the sum of $798,472.33.

4. On the return date, 12 January 1996, the Mareva injunction was continued by order of Rogers J.

5. These two orders were served on the Wing Hang Bank Ltd by registered post sent to its San Po Kong Branch.

6. On 13 March 1996 the appellant obtained judgment against the defendant in the sum claimed plus interest. It then proceeded to execution of that judgment by seeking a charging order against a property owned by the defendant namely Flat A, 12/F, Block 1 Seaview Garden, Tsing Yung Street, Tuen Mun and a carparking space No 176 on the lower ground floor level 1 of the same block, only to find that the Bank was a prior mortgagee of the property.

7. It was what the Bank did pursuant to its rights as mortgagee that gave rise to the appellant's complaints, leading to its ex parte application to Keith J for leave to issue proceedings for contempt.

The mortgage

8. Under a legal charge dated 18 January 1995 the defendant mortgaged the property to the Bank to secure banking facilities granted by the Bank. Thereafter, and until its indebtedness to the bank was discharged, the defendant's interest in the property was its equity of redemption.

9. Under the mortgage, the Bank as lender had the right to enter into and take possession of the property in the event of the defendant defaulting on any of its obligations set out in the mortgage deed including the repayment of any part of its indebtedness.

10. There were, in January 1996, sums owing to the Bank by the defendant on various accounts.

11. When the Mareva injunction was granted on 3 January 1996 restraining the defendant from disposing of its assets, that meant what it said: disposing of the assets belonging to the defendant, not someone else's assets. As far as the flat was concerned, that meant that the defendant was enjoined by order of the court from disposing of his equity of redemption and, at the time when it had a right of possession, disposing of that right. The Mareva injunction operated in personam vis-à-vis the defendant and of course left unaffected the Bank's right of property as a mortgagee. The Bank could do as it wished as mortgagee without being in any way accountable to the appellant who was simply an unsecured creditor of the defendant.

12. On 10 January 1996 the Bank required the repayment of certain sums from the defendant, namely an overdrawn amount in a current account and various sums in a trust receipt and packing loan account. The defendant was given 7 days to repay those sums. The defendant was in default. Thereafter, on about the 24 January 1996, the Bank obtained possession of the property.

13. The appellant's complaint in essence is this: The Bank did not go to court for an order for possession; it obtained possession because the defendant yielded possession of the flat to the Bank at the Bank's suggestion: this giving up of the right of possession, as counsel argues, was a dealing with the defendant's assets and therefore a technical breach of the injunction.

14. This point would have been correct if the defendant were not in default under the mortgage. But, by 17 January it was in default. By clause 6.01 of the legal charge, the Bank was entitled to take possession of the property. The consequence under the mortgage was that the defendant's right of possession was defeasible. So when, on 24 January, the arrangement was made for the Bank to take possession, the Bank was taking something which it had a right to take. The "surrender" of possession by the defendant was not a dissipation of its assets.

15. On 18 January 1996 the Bank called in the rest of the loans giving the defendant one month to repay. The defendant was in default in relation to those loans as well. Thereafter the property was sold at a public auction. Obviously any surplus in the Bank's hands, after the defendant's indebtedness and the expenses incurred in the auction had been deducted from the proceeds, would be held in trust for the defendant and any subsequent chargees. But that is not the focus of the appellant's complaint. The complaint in essence is that the Bank had exercised its rights as a mortgagee to take possession of the property, and then to sell it at auction.

The application for ex parte leave

16. In applying for ex parte leave to commit the officers of the So Po Kong Branch of the Bank to prison for contempt the appellant lodged its Order 52 r2 statement which, where relevant, states:

"4. The grounds upon which the above relief set forth in paragraph 3 hereof is sought is that the officers of the Bank have sold and/or have consorted with the Defendant to effect the sale of the Defendant's property known as Flat A, 12th Floor, Block 1 and Car Parking space No. 176 on Lower Ground Floor Level 1, Seaview Garden, No. 1 Tsing Yung Street, Tuen Mun, New Territories on or about 27th May, 1996 in breach of the Order of Mr. Justice Woo dated 3rd January, 1996 and the Order of Mr. Justice Rogers dated 12th January, 1996.

5. In particular:-

(a) the Bank did not apply for possession of the Property by way of a Court Order but took voluntary possession of the Property with full knowledge of the said terms of the said Orders;

(b) the Bank sold or cause to sell the Property in a public auction on 26th April, 1996; and

(c) The Plaintiff was given only 2 days prior notice of the auction arranged by the Bank to sell the Property. By a Memorandum of Agreement no. 721557 filed at HM Land Registry, the sale of the Property was completed on 27th May, 1996."

17. As can be seen from this statement the complaint is in essence over the Bank's exercise of its rights as mortgagee. The facts unquestionably show that when the Bank exercised those rights the defendant was in default. How in these circumstances it could be said that the Bank had aided and abetted the defendant in the breach of the terms of the Mareva injunction is difficult to comprehend.

18. In my judgment Yeung J was undoubtedly correct in concluding that the application to commit the officers of the Bank to prison for contempt was wholly misconceived.

The persons to be committed

19. There is another matter. Paragraph 3 of the Order 52 r2 statement sought an order that "the Directors and/or the officers of the Bank be committed to prison for their contempt": this indicated a class of persons, without specifying who precisely was to be committed to prison. When the originating motion was taken out it was addressed to "the officers on the Wing Hang Bank, San Po Kong Branch" again without specifying the individuals the subject of the application.

20. Order 52 r2 dealing with the grant of leave is in clear terms. Paragraph (2) states:

"(2) An application for such leave must be made ex parte to a judge, and must be supported by a statement setting out the name and description of the applicant, the name, description and address of the person sought to be committed...." (emphasis added).

This elementary requirement was simply ignored in the application. Where a corporation is said to have breached a court order, proceedings can be brought in two ways: (i) by a writ of sequestration against the company's property or (ii) by contempt proceedings brought personally against the officers responsible for the breach. An officer is not liable in contempt merely because of his office. And as the rules themselves indicate, where an application is brought personally against an officer, the "name, description and address of the person sought to be committed" is an essential part of the application.

21. It would appear therefore that the proceedings from their very inception were a nullity.

The notice of appeal

22. As counsel has pointed out when the appeal was opened this morning the notice of appeal is in fact one day late: counsel has sought an extension of time to enable the appeal to be heard. As we indicated at the beginning, if there was the least merit in the appeal we might have been inclined to give an extension of time. There is no merit. The appeal, in so far as it is properly constituted, is totally groundless and, in my judgment, must be dismissed.

Godfrey, J.A. :

23. I agree and would add only this.

24. A Mareva injunction, as the Vice-President has pointed out, gives rights merely in personam which are subordinate to the property rights of a secured chargee (authority for that proposition, if any is thought to be needed, may be found in Capital Cameras Ltd. v. Harold Lines Ltd. [1991] 1 WLR 54, see esp. at p.56).

25. It follows that an order for a Mareva injunction against a debtor ought to be expressed so as to exclude from its operation any property of the debtor the subject of any charge created by the debtor before the date of the grant of the injunction (so far as the applicant for the Mareva injunction is aware of the fact).

26. If the order does not so provide, the chargee will be entitled to have the injunction varied, if and so far as may be necessary to enable him to exercise his rights as chargee over the property the subject of the charge. In this case, on its particular facts, no variation was in fact necessary to enable the bank to exercise its rights as such chargee.

27. I agree, for the same reasons as those given by the Vice-President, that the plaintiff's application here was entirely misconceived and that this appeal to re-instate it ought to be dismissed.

Liu, J.A.:

28. If there had at all been any technical breach of the Mareva order, in the circumstances of this case, the Wing Hang Bank Ltd. should never have been drawn into proceedings as serious as these.

29. I agree with the way in which this appeal is proposed to be disposed of by the Vice-President, as supported by my Lord, Godfrey J.A.

Litton, V.-P.:

30. Regarding the costs of the appeal, as we have indicated in our judgments, the application for leave to take out proceedings for contempt was wholly misconceived. The reason behind such proceedings, what good they might have done as far as the appellant was concerned, is also difficult to fathom. In these circumstances the only proper order for costs is that the costs should be awarded to the respondent on an indemnity basis.

31. There is a further matter. We are concerned as to whether the full weight of these indemnity costs should be borne wholly by the unsuccessful appellant. The responsibility of the solicitors concerned comes into question. In saying that, I want to make it quite clear that no criticism whatever is directed at Mr Houghton who has conducted the appeal with great skill and dignity; he has been given an almost impossible brief which he has discharged with distinction.

32. There are two matters of concern: (i) whether the costs as between the solicitors and the appellant, or some part of those costs, should be disallowed; and (ii) whether the solicitors should be required to bear the indemnity costs, or part of those costs, which we have ordered the appellant to pay, thereby relieving the appellant at least to some extent of this burden. In these circumstances it would be appropriate to give directions under Order 62 r8 para 1, aimed both at the firm on record and also the firm which originally made the application before Keith J, namely Messrs Robertson Double & Lee, that they be given an opportunity to show cause why (a) the costs as between them and their own clients should not be disallowed and (b) as far as Messrs Richards Butler the present solicitors are concerned whether they should be ordered to bear part or all of the indemnity costs which we have just ordered. For this purpose we direct a hearing on Wednesday, 18 December 1996 at 9.45am for the solicitors to attend to show cause. We so order. Naturally this is not a matter that directly concerns the respondent who of course has a right to attend: Obviously if there is a question of the appellant being unable to discharge the order for costs which has been awarded in the respondent's favour, to that extent it may have an interest and counsel would therefore have a right to attend; but of course such attendance is not required by us.