YU TAI HING CO. LTD. v. SO SO HEUNG AND OTHERS

HCMP 5493/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 5493 OF 2001

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REASONS FOR JUDGMENT

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1. This is an application by the plaintiff to set aside two tenancy agreements entered into by the 1st defendant as landlord, and the 2nd and 3rd defendants as tenants, dated 1 November 2000 and 11 November 2000 respectively, under the provisions of section 60(1) of the Conveyancing and Property Ordinance, Cap. 219, namely that they were dispositions of properties made with intent to defraud creditors. Prior to the hearing the 3rd defendant came to terms with the plaintiff and agreed, in effect to an order in terms of the originating summons. After hearing counsel for the plaintiff and the 1st defendant, and the 2nd defendant being absent, I gave judgment for the plaintiff against both these defendants, and now give my reasons for so doing.

2. The history of the dealings between the plaintiff and the 1st defendant begins in 1997 when a company called Rightan Trading Ltd mortgaged a property in Fairview Park to the plaintiff. The 1st defendant herein was a guarantor of that mortgage and, upon default by the mortgagor, proceedings ensued, in HCMP 1175 of 2000, under Order 88 for possession of that property and payment of the sum due. Judgment was given in that matter against the mortgagor and the guarantors on 20 June 2000. The judgment debt not being paid, on 4 July 2000 the plaintiff applied for and was granted a charging order nisi in respect of the two properties the subject of these proceedings, which were registered in the 1st defendant's name. A hearing was fixed on 16 November 2000 for the application to make the order absolute, and that order was made by Master Jones on that date.

3. However, the 1st defendant on 1 and 11 November 2000, shortly before that hearing, entered into these tenancy agreements, without informing the plaintiff or the court. Indeed, after numerous other proceedings by the 1st defendant in HCMP 1175 of 2000, by appealing the order of Master Jones, seeking to set aside service of the originating summons and the original judgment and appealing the refusal of that application, all of which were unsuccessful, it was only when the plaintiff had obtained an order for possession by enforcing the charging order in HCMP 335 of 2001, and sought to obtain possession, that they were informed by a letter from the 1st defendant's solicitors dated 13 July 2001 that these tenancy agreements had been entered into.

4. The plaintiff contends that these tenancies were entered into with intent to defraud them and dishonestly to prevent or delay them securing payment of the judgment debt. Apart from the timing of the tenancy agreements, they rely on two matters which, they say, show that the agreements were not bona fide or arm's length transactions. The first is that they were let at a gross undervalue, for long terms, and the second is that, certainly in respect of the 2nd defendant, there is evidence that the parties were related.

5. As to the undervalue, the evidence of the plaintiff, which, in the absence of any evidence from the 1st or 2nd defendants, is unchallenged, is that the market rent for this property at the time was $13,000.00 per month exclusive of rates and management fees. The rent under the agreement of 1 November 2000 was $3,500.00 per month inclusive of rates of $508.92 a month, giving a net rental of less than $3,000.00 a month. Further, the term of the tenancy was 3 years, with an option to renew for a total of another 5 years 6 months with an increase in rent of only 10% for the second three years and not more than 19% for the last 30 months. It can readily be seen that, even if the plaintiff could find a buyer, the value on the open market of a property locked into such an agreement would be drastically reduced.

6. As to the parties to this agreement, the central figure to be considered is one Mr Ip Lam On, who is the husband of the 1st defendant. He signed the tenancy agreement on her behalf. He is also company secretary of the 2nd defendant, the tenant. The registered office of the 2nd defendant is the same as that of Rightan Trading Ltd, the 1st defendant and mortgagor in HCMP 1175 of 2000, which commenced this whole saga. As I have noted above, no evidence has been put in by either the 1st or 2nd defendants, so the relationship is unchallenged.

7. In my view the evidence is overwhelming that these tenancies were a deliberate and dishonest attempt to prevent the plaintiff enforcing a valid judgment, and fall within the section referred to. There was clearly an attempt to defraud creditors, and the plaintiff is obviously prejudiced by the agreement under consideration and is entitled to seek to have it set aside.

8. For these reasons I gave judgment for the plaintiff as sought in the originating summons.

9. I also made an order for costs against the 1st and 2nd defendants, and on the indemnity basis in respect of the 1st defendant. My reasons are these. The history of these and related proceedings shows that this defendant has consistently tried to obstruct and delay the plaintiff in enforcing their judgment, by applications to the court and subsequent appeals, all of which have been found to be totally without merit, and the defences she raised unbelievable. These, hopefully final, proceedings arise out of her blatant dishonesty, again in an attempt to prevent the lawful enforcement of a judgment of this court. The only course that the court can take to mark its extreme disapproval of such conduct is by way of costs, and the only proper order here must therefore be that those costs be taxed on the indemnity basis.