Case Detail

CACV 33/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 33 OF 2008

(ON APPEAL FROM HCMP NO. 769 OF 2002)

----------------------

	IN THE MATTER of Order 88 of the Rules of the High Court
	AND
	IN THE MATTER of the property known as No. 11 Changsha Street, Kowloon (All those portion of Kowloon Inland Lot No. 7339)
	AND
	IN THE MATTER of a Debenture dated the 29th Day of October 1999
	AND
	IN THE MATTER of a Tenancy Agreement dated 20th October 2001 made between Labour Buildings Limited and China States Limited
	AND
	IN THE MATTER of a Sub-Lease dated 16th November 2001 made between China States Limited and Hong Kong International Fraternity Association of Heilongjiang Limited
	AND
	IN THE MATTER of a Sub-Lease dated 22nd November 2001 made between China States Limited and Chance Land International Limited
	AND
	IN THE MATTER of a Sub-lease dated 19th November 2001 made between China States Limited and Yim Shui Fong
	AND
	IN THE MATTER of a Sub-Lease dated 28th November 2001 made between China States Limited and Invest China Limited
	AND
	IN THE MATTER of 2 Sub-Leases respectively dated 23rd January 2002 and 29th January 2002 made between China States Limited and World Honest Holdings Limited
	AND
	IN THE MATTER of a Sub-Lease dated 29th January 2002 made between China States Limited and Daisy Decorative Tin (Hong Kong) Limited
	AND
	IN THE MATTER of a Sub-Lease dated 29th January 2002 made between China States Limited and South Metal Construction
	AND
	IN THE MATTER of a Sub-Lease dated 5th February 2002 made between China States Limited and Christian Cornerstone Church
	AND
	IN THE MATTER of a Sub-Lease dated 9th February 2002 made between China States Limited and Maltese Music Art and Education Centre
	AND
	IN THE MATTER of a Sub-Lease dated 29th January 2002 made between China States Limited and Lau Shut Hon
	AND
	IN THE MATTER of 2 Sub-Leases respectively dated 9th February 2002 and 21st February 2002 made between China States Limited and Cosmos Energy International (HK) Limited
	AND
	IN THE MATTER of a Sub-Lease dated 28th February 2002 made between China States Limited and Idealtours Centre Limited
	AND
	IN THE MATTER of a Sub-Lease dated 27th February 2002 made between China States Limited and Golf (China) Limited
	AND
	IN THE MATTER of a Sub-Lease dated 1st March 2002 made between China States Limited and Sasa Bridal Salon Company

----------------------

BETWEEN

	THE BANK OF EAST ASIA, LIMITED	Plaintiff
	and
	LABOUR BUILDINGS LIMITED	1^st Defendant
	CHINA STATES LIMITED	2^nd Defendant
	HONG KONG INTERNATIONAL FRATERNITY ASSOCIATION OF HEILONGJIANG LIMITED	3^rd Defendant
	CHANCE LAND INTERNATIONAL LIMITED	4^th Defendant
	YIM SHUI FONG	5^th Defendant
	INVEST CHINA LIMITED	6^th Defendant
	WORLD HONEST HOLDING LIMITED	7^th Defendant
	DAISY DECORATIVE TIN (HONG KONG) LIMITED	8^th Defendant
	SOUTH METAL CONSTRUCTION (a firm)	9^th Defendant
	CHRISTIAN CORNERSTONE CHURCH	10^th Defendant
	MALTESE MUSIC ART AND EDUCATION CENTER (a firm)	11^th Defendant
	LAU SHUT HON	12^th Defendant
	COSMOS ENERGY INTERNATIONAL (HK) LIMITED	13^th Defendant
	IDEALTOURS CENTER LIMITED	14^th Defendant
	GOLF (CHINA) LIMITED	15^th Defendant
	SASA BRIDAL SALON COMPANY (a firm)	16^th Defendant

----------------------

Before: Hon Rogers VP, Le Pichon JA and Barma J in Court

Date of Hearing: 26 February 2009

Date of Judgment: 26 February 2009

------------------------

J U D G M E N T

----------------------

Hon Rogers VP:

1. The order that we will make is that there will be indemnity costs against the first defendant, costs against the second defendant, payment out of the money in court to the plaintiff and certificate for three counsel.

2. The application by the plaintiff that its costs against the first defendant are to be borne by Yan Hei is to be adjourned sine die with liberty to restore.

3. We do that because, at the moment, the facts relating to that are not clear. There is an affidavit from Mr Chan Hon-tsang which, in itself, is not sufficient, but I would draw attention to one matter which has been raised in this court and that is, under paragraph 3.1, it is said that Yan Hei, the party that the plaintiff wishes to bear the costs payable by the first defendant, did not pay the first defendant’s legal fees although, as the plaintiff said in paragraph 9 of the sixth affidavit of Mr Ho, there was a record in the general meeting of 18 April 2002.

4. Mr Kwan, on behalf of the plaintiff, has reminded this Court that there was produced to this Court on previous applications a letter from the HSBC showing that Right Gain Management Limited did pay considerable sums of money in counsel’s fees, on behalf of the first defendant. There is no dispute that Right Gain Management Limited is a subsidiary of Yan Hei and, in that respect, there is a great deal left to be desired out of what has been said in paragraph 3.1 and, in those circumstances, whatever suspicions this Court may have that Yan Hei, or some other party at its direction, was responsible for the first defendant’s and, indeed, probably the second defendant’s costs on this appeal, that has not been established, although it may well be established.

5. Mr Kwan has indicated that an application might be possible under Order 24 against the first defendant so that the funder of its costs can be revealed. It is premature that that should happen at the moment at least until those costs have not been satisfied. But, if they have not been satisfied, it should be open to the plaintiff to make such application to find out who did pay the first defendant’s costs. Whether or not that application would succeed will have to be left for another day.

(Submissions by counsel)

6. This is an application for leave to appeal to the Court of Final Appeal. It is put on two bases. The first basis is under section 22(1)(a) of the Hong Kong Court of Final Appeal Ordinance. What is said is that under the judgment of this Court, the interest to which the plaintiff is entitled is compound interest and what is said to be at issue under section 22(1)(a) is the difference between the compound interest which the plaintiff is now entitled to under this Court’s judgment and interest which the plaintiff might be entitled to under a restitutionary claim.

7. The restitutionary claim came about as explained in paragraph 18 of the judgment of this Court. It was a few days before this appeal was to be heard, and after the skeleton argument of the plaintiff in respect of the claim to restitution had been filed, that the skeleton argument of the defendants was filed. In that skeleton argument, it was conceded, for the first time, that the plaintiff was entitled to restitution. If the plaintiff was entitled to restitution, it would be on the basis that it would be regaining possession of its own money and the party admitting that it was bound to make that restitution was the first defendant. It was therefore expressly admitted that it was holding money of the plaintiff. If it was holding money of the plaintiff, it was some form of trustee of that money for the plaintiff. In the intervening time, it had traded with that money in that it had used that money for commercial purposes.

8. It was well within the powers of the court, even on a restitutionary claim, to order compound interest. In my view, there has been no attempt made to show what the difference in the interest would have been under the debenture which this Court has held that the plaintiff is entitled to, and under the restitutionary claim.

9. I would add that at the conclusion of paragraph 18 of my judgment, I said:

“It was said, however, that the amount which the plaintiff would recover on a restitutionary basis was less than the amount it would recover under the debenture because the rates of interest which a court would order on a restitutionary clam would be lower than under the debenture. Whether that would be so is, probably, highly questionable.”

10. In saying that, I had grave doubts as to whether there would be any difference in the amount of interest ordered because I could not understand why, in the circumstances of this case, when the first defendant was admittedly holding the plaintiff’s money and has admittedly used it for commercial purposes, it should not pay interest equivalent to that which it would have otherwise had to pay under the debenture.

11. The next basis upon which the application for leave is made is under section 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance on the basis that there are questions of great general or public importance. I have to say at the outset that there are 18 numbered paragraphs which fall within this, most of which are of the ilk of paragraph 5 which reads:

“Further or in the alternative, the final appeal will deal with questions of great or general public importance”

and it goes on in that vein. The only attempt which has been made to identify some question on which Mr Lo, this morning, has sought to rely on is subparagraph (iv) of paragraph 8 which reads:

“Whether under the Laws of Hong Kong, the party (assuming it could establish estoppel) could use the doctrine of estoppel as a sword to validate a document purportedly entered into by a company which is held not to have been authorised by its board of directors.”

12. In my view, that question simply does not arise. The estoppel which this Court has held to arise has not been used as a sword, it has been used as a defence to the defence which the first defendant has sought to raise, and the defence arises much in the way, as has been pointed out in the course of argument by Barma J, as Brandon LJ said in the case of Amalgamated Investment & Property Company Limited (in Liquidation) v Texas Commercial International Bank Limited [1982] 1 QB 84 at page 131. That is a case that was indeed cited by Mr Lo but it is instructive to consider what was said at page 131, starting at letter E:

“In my view, much of the language used in connection with these concepts is no more than a matter of semantics. Let me consider the present case and suppose that the bank had brought an action against the plaintiffs before they went into liquidation to recover the moneys owed by A.N.P.P. to Portsoken. In the statement of claim in such an action, the bank would have pleaded the contract of loan incorporating the guarantee, and averred that, on the true construction of the guarantee, the plaintiffs were bound to discharge the debt owed by A.N.P.P. to Portsoken. By their defence, the plaintiffs would have pleaded that, on the true construction of the guarantee, the plaintiffs were only bound to discharge debts owed by A.N.P.P. to the bank and not debts owed by A.N.P.P. to Portsoken. Then in their reply, the bank would have pleaded that, by reason of an estoppel arising from matters discussed above, the plaintiffs were precluded from questioning the interpretation of the guarantee which both parties had, for the purpose of the transactions between them, assumed to be true.
In this way, the bank, while still, in form, using the estoppel as a shield would, in substance, be founding a cause of action on it. This illustrates what I would regard as the true proposition of law, that while a party cannot in terms find a cause of action on an estoppel, he may, as a result of being able to rely on an estoppel, succeed on a cause of action on which, without being able to rely on that estoppel, he would necessarily have failed. That in my view is, in substance, the situation of the bank in the present case.”

13. In my view, that principle which was so clearly enunciated by Brandon LJ in the last paragraph cited above applies equally in this case. In my view, the defendants have not shown that there are issues of great general or public importance which this Court should certify should go to the Court of Final Appeal for decision.

14. I would therefore dismiss this application for leave to appeal.

Hon Le Pichon JA:

15. I agree.

Hon Barma J:

16. I also agree.

(Anthony Rogers)	(Doreen Le Pichon)	(Aarif Barma)
Vice-President	Justice of Appeal	Judge of the Court of First Instance

Mr Steven Kwan, instructed by Messrs Wilkinson & Grist, for the Plaintiff

Mr Tommy Lo, instructed by David W T Chan & Co., for the 1st and 2nd Defendants

Mr P K Chan, instructed by Wong & Co., for Yan Hei (Holdings) Limited (Interested Party)

CACV 33/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 33 OF 2008

(ON APPEAL FROM HCMP NO. 769 OF 2002)

----------------------

	IN THE MATTER of Order 88 of the Rules of the High Court
	and
	IN THE MATTER of the property known as No. 11 Changsha Street, Kowloon (All those portion of Kowloon Inland Lot No. 7339)
	and
	IN THE MATTER of a Debenture dated the 29th Day of October 1999
	and
	IN THE MATTER of a Tenancy Agreement dated 20th October 2001 made between Labour Buildings Limited and China States Limited
	and
	IN THE MATTER of a Sub-Lease dated 16th November 2001 made between China States Limited and Hong Kong International Fraternity Association of Heilongjiang Limited
	and
	IN THE MATTER of a Sub-Lease dated 22nd November 2001 made between China States Limited and Chance Land International Limited
	and
	IN THE MATTER of a Sub-lease dated 19th November 2001 made between China States Limited and Yim Shui Fong
	and
	IN THE MATTER of a Sub-Lease dated 28th November 2001 made between China States Limited and Invest China Limited
	and
	IN THE MATTER of 2 Sub-Leases respectively dated 23rd January 2002 and 29th January 2002 made between China States Limited and World Honest Holdings Limited
	and
	IN THE MATTER of a Sub-Lease dated 29th January 2002 made between China States Limited and Daisy Decorative Tin (Hong Kong) Limited
	and
	IN THE MATTER of a Sub-Lease dated 29th January 2002 made between China States Limited and South Metal Construction
	and
	IN THE MATTER of a Sub-Lease dated 5th February 2002 made between China States Limited and Christian Cornerstone Church
	and
	IN THE MATTER of a Sub-Lease dated 9th February 2002 made between China States Limited and Maltese Music Art and Education Centre
	and
	IN THE MATTER of a Sub-Lease dated 29th January 2002 made between China States Limited and Lau Shut Hon
	and
	IN THE MATTER of 2 Sub-Leases respectively dated 9th February 2002 and 21st February 2002 made between China States Limited and Cosmos Energy International (HK) Limited
	and
	IN THE MATTER of a Sub-Lease dated 28th February 2002 made between China States Limited and Idealtours Centre Limited
	and
	IN THE MATTER of a Sub-Lease dated 27th February 2002 made between China States Limited and Golf (China) Limited
	and
	IN THE MATTER of a Sub-Lease dated 1st March 2002 made between China States Limited and Sasa Bridal Salon Company

----------------------

BETWEEN

	THE BANK OF EAST ASIA, LIMITED	Plaintiff
	and
	LABOUR BUILDINGS LIMITED	1^st Defendant
	CHINA STATES LIMITED	2^nd Defendant
	HONG KONG INTERNATIONAL	3^rd Defendant
	FRATERNITY ASSOCIATION OF
	HEILONGJIANG LIMITED
	CHANCE LAND	4^th Defendant
	INTERNATIONAL LIMITED
	YIM SHUI FONG	5^th Defendant
	INVEST CHINA LIMITED	6^th Defendant
	WORLD HONEST HOLDING LIMITED	7^th Defendant
	DAISY DECORATIVE TIN	8^th Defendant
	(HONG KONG) LIMITED
	SOUTH METAL CONSTRUCTION (a firm)	9^th Defendant
	CHRISTIAN CORNERSTONE CHURCH	10^th Defendant
	MALTESE MUSIC ART AND	11^th Defendant
	EDUCATION CENTER (a firm)
	LAU SHUT HON	12^th Defendant
	COSMOS ENERGY INTERNATIONAL (HK) LIMITED	13^th Defendant

	IDEALTOURS CENTER LIMITED	14^th Defendant
	GOLF (CHINA) LIMITED	15^th Defendant
	SASA BRIDAL SALON COMPANY (a firm)	16^th Defendant

----------------------

Before: Hon Rogers VP, Le Pichon JA and Barma J in Court

Date of Hearing: 5 November 2008

Date of Handing Down Judgment: 18 November 2008

----------------------------------------

J U D G M E N T

--------------------------------------

Hon Rogers VP:

1. This was an appeal from a judgment of Deputy High Court Judge Gill given on 23 January 2008. By that judgment the judge made a declaration that the property known as No. 11 Changsha Street, Kowloon (“the property”) was charged to the plaintiff by way of legal mortgage under a debenture entered into in 1999 with repayment to the plaintiff of the indebtedness; the judge ordered payment by the first defendant to the plaintiff of the sum of HK$86,159,095.98 with interest on that sum at the judgment rate from 24 January 2008 until payment and, in default of such payment, possession of the property to the plaintiff. As against the second defendant the judge gave judgment for possession of the property with mesne profits payable by the second defendant to the first defendant from 1 March 2002 until possession of the property was obtained. At the conclusion of the hearing of this appeal judgment was reserved which we now give.

Background

2. Originally, the first defendant was owned to a very large extent by those who had connections with the Kuomintang political party in Taiwan with smaller holdings by certain trade union interests in Hong Kong. The first defendant’s major asset was the property. In 1996 a company by the name of APH Hong Kong Ltd (“APH”) acquired 73.2% of the first defendant. APH acquired those shares by transfer and itself appears to have been owned by the Kuomintang.

3. In 1997 a debenture dated 26 February 1997 (“the 1997 debenture”) was executed whereby the first defendant was to obtain a loan of some $40 million from the plaintiff in order for the first defendant to be able to redevelop the property. Later that same year, it seems that it was recognised that the first defendant would require further funds in order to be able to complete the redevelopment. In consequence the question of a further advance was discussed and the plaintiff referred the matter to its solicitors, who had advised in respect of the 1997 debenture. On this occasion the solicitors recognised that the original debenture was for an amount that was very far in excess of what was permitted under the first defendant’s Articles without sanction of the shareholders. As such the solicitors recommended that the original debenture should be ratified. For that purpose an EGM was called to be held in November of that year.

4. In 1999 the first defendant requested the plaintiff to provide an extension of the repayment terms as well as an increase in the advance. For this purpose a further debenture was executed and the 1997 debenture was released on payment of the funds from a further debenture, dated 29 October 1999 (“the 1999 debenture”).

5. As the judge recorded in paragraph 127 of the judgement, on 13 September 2001 APH disposed of all its shares in the first defendant to a company called Yan Hei Holdings Ltd (“Yan Hei”). By then the property had been redeveloped using money obtained under the debenture. The consideration for the sale was a mere $2,781,600. However, in addition, clause 5 of the assignment provided that:

“5. The Transferee and the Transferor must preserve the Bank of East Asia loan to ensure the loan agreement of the Bank of East Asia unchanged, so as to prevent from causing financial confusion, to avoid causing loss.”

6. At that time the debt due to the plaintiff then stood at $46,785,385.

7. At about the same time there was a considerable change in the directors of the first defendant. Six of the directors who had been appointed when APH first acquired its interest in the first defendant resigned when the sale of the shares was completed. Two of the other directors had retired prior thereto. However, apparently, on the same date Mr Lee Kwok Keung was appointed. Mr Lee was the sole witness for the defendants at the trial. Yan Hei was appointed to the board of the first defendant in May 2002 and in September 2002 the second defendant, China States Limited (“CSL”), also became a director.

8. The holdings of the shares in the various companies was examined by the judge following submissions which had been made and at paragraph 141-2 the judge said:

“141. So, what comes out of this is that David Chan, solicitor, has by virtue of his control over C C Services Ltd and DWTC Services Ltd total control over Yan Hei. And Yan Hei is the majority shareholder of LBL (the first defendant), and a director of LBL.

142. sHe is also through his control of C C Services Ltd a voice on the board of CSL.”

9. The matter is of particular significance. This action was commenced in March 2002 following a failure by the first defendant to continue to make payments under the 1999 debenture. At an EGM of the first defendant on 18 April 2002 it was resolved that David WT Chan solicitors should represent the first defendant in the litigation and it was also resolved that Yan Hei would be responsible for the legal costs. As noted in paragraphs 143-8 of the judgment the judge was highly sceptical of the instructions given to the defendants’ counsel that Yan Hei was not funding the litigation. The judge summarised his conclusions on this aspect when he said:

“164.  ….. the following circumstances, which have emerged since APH HK left the scene and Yan Hei came to it:
(1)  Until APH HK sold there had been no default with the Bank and no claim of irregularity in the debentures or of misconduct including fraud and forgery.
(2)  This emerged four years after the first drawdown, in October 2001 when Yan Hei became the majority shareholder of LBL. David Chan controls Yan Hei and all along has been its solicitor. He became solicitor for LBL. He also controls CSL, and is its solicitor. He has represented LBL and CSL throughout the litigation.
(3)  Yan Hei has funded the litigation through the 5½ years to trial, and 42 days of trial. Four counsel were engaged for the trial.
(4)  To avoid perjuring himself, K K Lee was obliged to strike out large pieces of his witness statement, in circumstances giving rise to the prospect that parts of it had been made up (in the sinister meaning of those words).
165.  In the circumstances I am satisfied that whilst the defendants are LBL and CSL the litigator is in reality Yan Hei, orchestrated and controlled by David Chan.”

10. The judge defined the issues in the case in paragraph 166 of his judgment as follows:

“1.  Was there a political issue, called the Kuomintang Factor, which caused senior management of BEA to disregard getting the loan documents and procedures right?
2.  Was the 1997 Debenture invalid because power to authorize the borrowing was outside the directors’ powers, and or because the meeting authorising its execution was inquorate?
3.  Did BEA dishonestly assist or turn a blind eye to the misappropriation of some of the loan?
4.  (a)    Was the 1997 Debenture ratified by the shareholders and did they authorize the further advance?
     (b)    Did they give the directors unlimited borrowing powers?
5.  Was the 1999 Debenture invalid because of irregularities in the authorizing of its execution; in particular, because the Board minutes of 17 September 1999 were a forgery?
6.  If there were any irregularities in the process leading up to the execution of the securities as to render them invalid but for ratification and or the rule in Turquand’s case, is the integrity of the securities saved by exercise of the rule?
7.  In any event can BEA rely on the doctrine of estoppel to enforce repayment?
8.  If the debentures, in particular the 1999 Debenture, are invalid, is BEA entitled to recover the amount advanced and interest thereon by restitution?”

11. Whilst holding that the “Kuomintang Factor” did not amount to anything the judge dismissed the suggestion that the plaintiff had assisted or at least turned a blind eye to irregularities which included the channelling of some of the borrowed money away from its proper destination namely the construction project and into the pockets of the Kuomintang. The defendants had attempted to mount such a case on the basis of the known wish of the plaintiff to open a branch in Taipei. The judge considered fully the evidence of the plaintiff in this regard and came to the conclusion that there was nothing in the allegation.

12. In this context it is important to note that Mr Lee required material parts of his witness statement to be deleted because they were incorrect. One of the passages read:

“The 1^st Defendant was merely the conduit of funding of HKTU missions by Kuomintang. From my experience and knowledge of the practice of Kuomintang, the alleged sum of $7,649,411 ($2,859,304 + $4,790,107) should be funds for carrying out different political missions by different groups of Kuomintang members.”

13. This was one of a number of passages in his witness statement which was designed to lead to the conclusion that the plaintiff had used the debenture as a means of channelling money to the Kuomintang. It transpired that Mr Chan had prepared witness statements for Mr Lee and that Mr Lee had only read the statements shortly before the hearing, hence it was then that he required the deletion of the allegations that money was being channelled to the Kuomintang. The judge considered that there was a real prospect that the correct descriptions for the deleted parts of Mr Lee’s witness statement were “invented” or “fabricated”.

14. Turning to the other issues that the judge had identified, the plaintiff accepted that the board’s authorisation to borrow under the 1997 debenture was invalid because of the proviso of Regulation 81 of Table A that had been adopted as incorporated into the Articles of the first defendant. That proviso read:

“Provided that the amount for the time being remaining undischarged of moneys borrowed or secured by the directors as aforesaid (apart from temporary loans obtained from the company’s bankers in the ordinary course of business) shall not at any time, without the previous sanction of the company in general meeting, exceed the nominal amount of the share capital of the company for the time being issued, but nevertheless no lender or other person dealing with the company shall be concerned to see or inquire whether this limit is observed. No debt incurred or security given in excess of such limit shall be invalid or ineffectual except in the case of express notice to the lender or the recipient of the security at the time when the debt was incurred or security given that the limit hereby imposed had been or was thereby exceeded.”

15. As already noted, in 1997, the plaintiff’s solicitors reviewed the documentation relating to the debenture because the first defendant required to borrow a further $10 million. In October that year the solicitors advised that it was necessary for the first defendant to hold an EGM to ratify the borrowing. There is no doubt that a meeting was held 26 November 1997. The defendants had argued that there had been inadequate notice of the meeting and that the resolution passed at the meeting was not as recorded at the Companies Registry but had been ineffective to nullify the restriction in Regulation 81. The judge held against the defendants on both points.

16. As regards the attack on the validity of the 1999 debenture because it was said that there never had been a board meeting to authorise that debenture and that in consequence the minute of a board meeting of 17 September 1999 had been a forgery, the judge said that although it had been conceded that there had been no board meeting on 17 September, it had not been established that there had been no board authorisation which would have satisfied the requirements of a meeting and he was not prepared to hold that the minutes were a forgery.

17. The judge held that, if indeed there had been nothing which would have satisfied the requirements of a meeting, the plaintiff would not be able to rely on the rule in The Royal British Bank v Turquand [1856] 6 E&B 327 because the plaintiff’s solicitors would have had knowledge of the relevant facts that would have led to that conclusion. On the other hand the plaintiff would have been able to rely on estoppel constituted by the first defendant’s conduct to prevent it relying on any supposed lack of proper board authorisation. Finally, the judge held that the question of the plaintiff’s fallback reliance on restitution did not arise because of its success in respect of the primary point.

This appeal

18. After judgment had been given in the court below the first defendant resisted payment of the money that the judge had found owing to the plaintiff on the basis that it had good grounds for appeal. It was not until a very few days before this appeal was to be heard, and after the skeleton argument of the plaintiff in respect of the claim to restitution had been filed, that the skeleton argument for the defendants was filed. In that skeleton it was conceded, for the first time, that the plaintiff was entitled to restitution. It was said, however, that the amount which the plaintiff would recover on a restitutionary basis was less than the amount it would recover under the debenture because the rates of interest which a court would order on a restitutionary claim would be lower than under the debenture. Whether that would be so is, probably, highly questionable. In my view, that question does not fall to be considered.

19. Mr Chan SC, who appeared on behalf of the defendants on this appeal, took three main points. In the first place he challenged the finding of the judge that the EGM on 26 November 1997 had not been shown to be invalidly convened by reason of short notice. In the second place he argued that even if notice of the EGM had been validly given and in time, the special resolution which had been passed did not have the effect of removing the proviso of Regulation 81 of Table A from the first defendant’s Articles. In the third place he argued that there had clearly never been any board meeting on 17 September and hence the 1999 debenture had not been approved. His argument went on that the plaintiff was not entitled to rely on either the rule in Turquand’s case or upon estoppel.

Short notice of the EGM held on 26 November 1997

20. At the outset it may be observed that approximately 97% in value of the shareholders attended the meeting on 26 November 1997. The purpose of that meeting was clearly to ratify, retrospectively, the 1997 debenture and increase the directors’ power to borrow money. It can also be observed that since it is the defendants’ case that the meeting was called on short notice it is primarily for the defendants themselves to show that the first defendant’s procedure was wrong. No discovery was given of the notice calling the meeting. An excuse was proffered in argument in this court that when the company was taken over by Yan Hei, there were no documents handed over.

21. It may then also be observed that there was no oral evidence called by the defendants to show that the notice of the meeting had been short. Mr Whitehead SC, who has appeared for the plaintiff throughout in these proceedings, observed that the defendants had assembled nine shareholders of the first defendant to give witness statements. This court did not see those statements. Nevertheless the fact remains that none of those shareholders who had been shareholders at the time, were called to give evidence. Although paragraph 17 of Mr Lee’s witness statement had originally contained the statement that no notice of the meeting “was sent to all the shareholders” that was one of the passages Mr Lee had insisted be deleted. Furthermore the EGM had been attended by the first defendant’s own solicitor. Had the notice calling the meeting been short he could have proposed a motion at the meeting to rectify the situation. It would seem, also, that the solicitor could have given evidence at the trial.

22. It is fair to say that Mr Chan did not rely heavily on this point and, indeed, it was one which was founded upon an attempt to draw an inference based on correspondence. The judge was not prepared to draw any such inference. In my view there is no compelling reason why this court should hold that the judge was wrong not to have drawn any inference that the notice was short. This is a question of fact. The judge was entitled to find the fact in the way he did. I do not consider that this court should disturb that finding.

The effect of the special resolution

23. In argument Mr Chan contended that the formal wording of the resolution that had been drawn up by the solicitor did not reflect the resolution which had been passed. In this respect he relied upon the minutes of the meeting in comparison with the wording as drawn up by the solicitor when the formal minute was prepared after the meeting. For completeness I set the two out below:

The translation of the relevant part of the minutes of the meeting read:

“The directors may exercise all the powers of the company to borrow money, even to exceed the nominal amount of the share capital of the company for the time being issued and to mortgage or charge in undertaking, property and uncalled capital, or any part thereof, and to issue debentures, debenture stock, and, subject to section 57B of the Ordinance, convertible debentures and convertible debentures stock, and other securities whether outright or as security for any debt, liability or obligation of the company or of any third party.”

The relevant part of minute as filed at the Companies Registries reads:

“The proviso of rule 81 of Table A does not apply to the Articles of Association of the Company. Thus, the Directors may exercise all the powers of the Company to borrow money, and to mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and to issue debentures, debenture Stock, and subject to section 57B of the Companies Ordinance, convertible debentures and convertible debenture stock, and other securities whether outright or as security for any debt, liability or obligation of the Company or of any third party.”

24. In my view the minute as prepared and filed at the Companies Registry is an unexceptionable formal encapsulation of the clear intent and meaning of the minutes of the meeting and I see no grounds for holding it is invalid.

The board meeting of 17 September 1999

25. As, very properly, conceded by Mr Whitehead it is clear that there could not have been a meeting either in September or October 1999 when all the persons said to have been present were in Taiwan. Whilst the judge was prepared to accept that there could be other ways of holding a meeting other than by physical presence in the same place, nothing has been shown that there was a conference call or some other arrangement. No doubt Mr Ma, who signed the minutes of the meeting, considered that all the directors were in agreement with the recorded outcome and there is nothing to suggest otherwise. In this respect I consider that it is dangerous to assume that a meeting was held in what might otherwise be considered an unusual manner when it was recorded as being held by persons being present.

26. The point taken by the defendants is, nevertheless, in my view wholly unmeritorious. The board minute was intended to be a formal record of what was clearly the first defendant’s intention. The plaintiff advanced all monies due under the 1997 debenture. The debt owing under that debenture was subsequently refinanced by the 1999 debenture. There was never any suggestion prior to the 1999 debenture that the first defendant was not required to observe the terms of that document. Indeed the 1999 debenture came into existence precisely because the first defendant considered itself bound by the 1997 debenture. Thereafter the first defendant not only did not dispute the validity of the 1999 debenture but acted upon it and made repayments totalling HK$4.2 million in the period up to the time when the majority ownership of the first defendant was purchased by Yan Hei. As already noted, clause 5 of the purchase agreement required Yan Hei to recognise the validity of the loans from the plaintiff. All the documents emanating from the first defendant, in so far as they still exist, point to the validity of the loans. Indeed, specifically, the first defendant’s accounts, which were duly audited, demonstrate that. In my view the plaintiff is entitled to rely upon estoppel in this respect.

27. In those circumstances, the plaintiff’s case on the main ground must succeed and the plaintiff does not need to rely on a claim in restitution.

28. I would therefore dismiss this appeal and make an order nisi of costs in favour of the plaintiff.

Hon Le Pichon JA:

29. I agree.

Hon Barma J:

30. I agree.

(Anthony Rogers)	(Doreen Le Pichon)	(Aarif Barma)
Vice-President	Justice of Appeal	Judge of the Court of First Instance

Mr Robert Whitehead SC, Mr Steven Kwan & Ms Joey Yuen, instructed by Messrs Wilkinson & Grist, for the Plaintiff/Respondent

Mr Edward Chan SC & Mr Tommy Lo, instructed by Messrs David W.T. Chan & Co., for the 1^st & 2^nd Defendants/Appellants

1st and 2nd Defendants application for leave to appeal to Court of Appeal dismissed by Court of Appeal. Please refer to CACV33/2008 dated 26 February 2009

CACV 33/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 33 OF 2008

(ON APPEAL FROM HCMP NO. 769 OF 2002)

	IN THE MATTER of Order 88 of the Rules of the High Court
	and
	IN THE MATTER of the property known as No.11 Changsha Street, Kowloon (All those portion of Kowloon Inland Lot No.7339)
	and
	IN THE MATTER of a Debenture dated the 29^th day of October 1999
	and
	IN THE MATTER of a Tenancy Agreement dated 20^th October 2001 made between Labour Buildings Limited and China States Limited
	and
	IN THE MATTER of a Sub-Lease dated 16^th November 2001 made between China States Limited and Hong Kong International Fraternity Association of Heilongjiang Limited
	and
	IN THE MATTER of a Sub-Lease dated 22^nd November 2001 made between China States Limited and Chance Land International Limited
	and
	IN THE MATTER of a Sub-Lease dated 19^th November 2001 made between China States Limited and Yim Shui Fong
	and
	IN THE MATTER of a Sub-Lease dated 28^th November 2001 made between China States Limited and Invest China Limited
	and
	IN THE MATTER of 2 Sub-Leases respectively dated 23^rd January 2002 and 29^th January 2002 made between China States Limited and World Honest Holding Limited
	and
	IN THE MATTER of a Sub-Lease dated 29^th January 2002 made between China States Limited and Daisy Decorative Tin (Hong Kong) Limited
	and
	IN THE MATTER of a Sub-Lease dated 29^th January 2002 made between China States Limited and South Metal Construction
	and
	IN THE MATTER of a Sub-Lease dated 5^th February 2002 made between China States Limited and Christian Cornerstone Church
	and
	IN TH MATTER of a Sub-Lease dated 9^th February 2002 made between China States Limited and Maltese Music Art and Education Centre
	and
	IN THE MATTER of a Sub-Lease dated 29^th January 2002 made between China States Limited and Lau Shut Hon
	and
	IN THE MATTER of 2 Sub-Leases respectively dated 9^th February 2002 and 21^st February 2002 made between China States Limited and Cosmos Energy International (HK) Limited
	and
	IN THE MATTER of a Sub-Lease dated 28^th February 2002 made between China States Limited and Ideatours Center Limited
	and
	IN THE MATTER of a Sub-Lease dated 27^th February 2002 made between China States Limited and Golf (China) Limited
	and
	IN THE MATTER of a Sub-Lease dated 1^st March 2002 made between China States Limited Sasa Bridal Salon Company

----------------------

BETWEEN
	THE BANK OF EAST ASIA, LIMITED	Plaintiff
	and
	LABOUR BUILDINGS LIMITED	1st Defendant
	CHINA STATES LIMITED	2nd Defendant

----------------------

Before: Hon Tang VP and Burrell J in Court

Date of Hearing: 25 September 2008

Date of Judgment: 30 September 2008

----------------------

JUDGMENT

----------------------

Hon Tang VP:

1. The Bank of East Asia Limited (“the Bank”) claimed to be the legal chargee of No. 11 Changsha Street, Kowloon (“the property”) under a debenture granted by the 1^st defendant. After a trial which had lasted over 40 days, the validity of the debenture was upheld by Deputy Judge Gill. In consequence, the learned judge ordered that until payment due under the debenture was made, possession of the property should be delivered to the Bank.

2. That decision is the subject of the appeal by the 1^st and 2^nd defendants by a Notice of Appeal dated 4 February 2008.

3. On 27 May 2008, the Bank applied for security for costs of the appeal.

4. On 18 June 2008, Rogers VP ordered the 1^st and 2^nd defendants to provide security for costs in the total sum of $2,500,000. The defendants were given up to and including 31 July 2008 to give security by payment into court:

“… by cash or bankers draft or by the provision of a bank guarantee of the like amount which guarantee shall have been approved by the Registrar”.

5. That order was made on the basis of a skeleton bill which was supplied by the Bank’s solicitor on 19 May 2008 (“May skeleton bill”). The May skeleton bill covered costs totalling $3,473,550 made up of costs incurred of $1,227,550 and the estimated amount of costs to be incurred of $2,246,000.

6. The $2,500,000 ordered by Rogers VP represented approximately 72% of the amount sought.

7. However, Mr. Edward Chan, SC who appeared on behalf of the 1^st and 2^nd defendants, has asked us to note that the order of Rogers VP was that the 1^st defendant should provide security in the sum of $2,000,000, and that the 2^nd defendant was to provide security in the sum of $1,500,000 save that:

“… should the 1^st defendant provide security in the sum of HK$2 million, such sum be reduced to HK$500,000.00”.

8. $2,000,000 is about 57.5% of the amount sought of $3,473,550 and $1,500,000, 42%.

9. There had been various applications for a stay of order of Deputy Judge Gill, both to the learned deputy judge himself as well as to Rogers VP.

10. On 18 June 2008, on the same occasion when security for costs was ordered, Rogers VP refused a stay of execution pending appeal. The Bank obtained possession on 18 June 2008 and receivers were appointed on 20 June 2008.

11. Arrangements had been made by the receiver to sell the property by auction. Since the 1^st and 2^nd defendants believed that a forced sale by auction would be disadvantageous, the defendants obtained a bridging loan to pay off the Bank and discharge the security.

12. On 14 August 2008, the parties came to an agreement for satisfying the judgment debt and discharging the security upon the payment of $103,000,000 by the defendants which sum was inclusive of the Bank’s legal costs up to 14 August 2008. According to the Bank, in agreeing to such a settlement, it had made the commercial decision to forego a substantial part of legal costs and the costs of receivers actually incurred up to 14 August 2008 which would otherwise have been payable under the judgment and the debenture.

13. Earlier on 11 July 2008, the 2^nd defendant lodged an appeal against the two orders of Rogers VP made on 18 June 2008. On 9 September 2008, the 1^st defendant applied by summons to appeal against the two orders of Rogers VP. These appeals are out of time and an extension of time is sought.

14. On 31 July 2008, both the 1^st and 2^nd defendants had issued summonses for extension of time for payment of security for costs.

15. The appeals from Rogers VP’s order refusing a stay is no longer pursued. As noted, the Bank has been paid $103,000,000, the receiver discharged and the debenture fully satisfied. We are only concerned with the order of security for costs made on 18 June 2008.

16. Mr Chan, subject to what I will mention later, does not dispute that the Bank should have security. The dispute is over quantum and approach. Indeed, quantum would depend on the approach adopted. Mr Chan’s approach is to proceed on the basis (I have simplified it) that the amount of security should be so much of the $2,500,000 ordered by Rogers VP as was proportionate to that part of the costs in the May skeleton bill which represented costs incurred or to be incurred after 14 August 2008. Mr Chan submitted (and accepted by Mr Whitehead) that out of the total of $3,473,550, sought by the May skeleton bill, $1,905,550 was attributable to costs incurred prior to 14 August 2008. Further (also accepted by Mr Whitehead), the total of $3,473,550 had wrongly included sums totalling $220,000. The net result is that of the sum of $3,473,550 sought under the May skeleton bill, only $1,348,000 related to costs incurred or to be incurred after 14 August 2008. That being the case, if one discounts $1,348,000 by 28% (the apparent discount adopted by Rogers VP), the amount of security required should be $970,560. Mr Chan further submitted that although the total security ordered, namely, $2,500,000 amounted to about 72% of the total sought, in considering the respective position of the 1^st and 2^nd defendants, we should proceed on the basis that the amount of security the 1^st defendant was ordered to provide was only $2,000,000 and that in default of the 1^st defendant, the 2^nd defendant was only required to provide $1,500,000. Thus, the discount should be based on these lower figures. I hope I will be forgiven for dealing with Mr Chan’s complicated calculations so briefly.

17. Although the Bank had not applied formally to us to vary the security for costs ordered, with our encouragement, Mr Whitehead asked us to deal with the matter as if there was such an application by the Bank. I believe I should proceed on the basis that the order made by Rogers VP has been overtaken by events. The position today is a simple one. The property has been released, so the Bank no longer has the security of the property. The bank has been paid all its costs incurred up to 14 August 2008. It is immaterial that they had made the commercial decision to give up part of such costs, Mr Whitehead accepted that on taxation, the Bank would not be able to recover any costs incurred prior to 14 August 2008. The appeal, however, remains pending. No payment has been made into court and there is no security in relation to the costs of the appeal incurred or to be incurred subsequent to 14 August 2008. According to the Bank’s revised skeleton bill submitted to us the amount of such costs will be HK$1,968,800.

18. Mr Chan submitted that since the 1^st defendant has agreed to sell the property for $160,000,000 with completion to take place on 30 September 2008, no security should be ordered. But Mr Chan also frankly accepted, there is no certainty that completion would take place. It is true that the property has been released from the debenture but there is a bridging loan of $103,000,000.

19. I believe that in all the circumstances of this case, it is only fair that security for costs of the appeal should be ordered. As for quantum, taking a broad-brush approach, I believe the appropriate amount of security to be ordered is $1,200,000.

20. Mr Chan has drawn attention to the fact that a sum of $300,000 had been paid into court on 14 May 2008 as security for interest. Since such interests would have been subsumed in $103,000,000 already paid, this amount is available as security for costs.

21. So the order that I would make is that the amount of $300,000 paid into court should be treated as part of the security for costs in relation to the Bank’s costs of the appeal. So the 1^st defendant will only need to pay the balance of $900,000 into court either by cash or banker’s draft or by way of security to be approved by the Registrar. I do not propose to make a separate order in relation to the 2^nd defendant save that if the additional security in the sum of $900,000 be not provided by the 1^st defendant within 21 days, then unless the same be provided by the 2^nd defendant within 14 days thereafter, the appeals of both defendant will be stayed. If, however, the amount of security is provided by either defendant, neither appeal should be stayed.

22. As for the costs of the hearing before us, I would make an order nisi that it be in the cause of the appeal. I do so, because, as may be apparent form my judgment, the arguments had undergone substantial changes before us. It will be pointless to try to decide who has won on which argument, nor, whether the outcome is closer to the defendants’ position or the Bank’s.

Hon Burrell J:

23. I agree.

(Robert Tang)
Vice-President

(M.P. Burrell)
Judge of the Court of First Instance

Mr. Edward Chan, SC & Mr. Tommy Lo, instructed by Messrs David W. T. Chan & Co., for the 1^st and 2^nd Defendants.

Mr. Robert Whitehead, SC & Mr. Steven Kwan, instructed by Messrs Wilkinson & Grist, for the Plaintiff.

CACV 33/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 33 OF 2008

(ON APPEAL FROM HCMP NO. 769 OF 2002)

----------------------

	IN THE MATTER of Order 88 of the Rules of the High Court
	AND
	IN THE MATTER of the property known as No. 11 Changsha Street, Kowloon (All those portion of Kowloon Inland Lot No. 7339)
	AND
	IN THE MATTER of a Debenture dated the 29th Day of October 1999
	AND
	IN THE MATTER of a Tenancy Agreement dated 20th October 2001 made between Labour Buildings Limited and China States Limited
	AND
	IN THE MATTER of a Sub-Lease dated 16th November 2001 made between China States Limited and Hong Kong International Fraternity Association of Heilongjiang Limited
	AND
	IN THE MATTER of a Sub-Lease dated 22nd November 2001 made between China States Limited and Chance Land International Limited
	AND
	IN THE MATTER of a Sub-lease dated 19th November 2001 made between China States Limited and Yim Shui Fong
	AND
	IN THE MATTER of a Sub-Lease dated 28th November 2001 made between China States Limited and Invest China Limited
	AND
	IN THE MATTER of 2 Sub-Leases respectively dated 23rd January 2002 and 29th January 2002 made between China States Limited and World Honest Holdings Limited
	AND
	IN THE MATTER of a Sub-Lease dated 29th January 2002 made between China States Limited and Daisy Decorative Tin (Hong Kong) Limited
	AND
	IN THE MATTER of a Sub-Lease dated 29th January 2002 made between China States Limited and South Metal Construction
	AND
	IN THE MATTER of a Sub-Lease dated 5th February 2002 made between China States Limited and Christian Cornerstone Church
	AND
	IN THE MATTER of a Sub-Lease dated 9th February 2002 made between China States Limited and Maltese Music Art and Education Centre
	AND
	IN THE MATTER of a Sub-Lease dated 29th January 2002 made between China States Limited and Lau Shut Hon
	AND
	IN THE MATTER of 2 Sub-Leases respectively dated 9th February 2002 and 21st February 2002 made between China States Limited and Cosmos Energy International (HK) Limited
	AND
	IN THE MATTER of a Sub-Lease dated 28th February 2002 made between China States Limited and Idealtours Centre Limited
	AND
	IN THE MATTER of a Sub-Lease dated 27th February 2002 made between China States Limited and Golf (China) Limited
	AND
	IN THE MATTER of a Sub-Lease dated 1st March 2002 made between China States Limited and Sasa Bridal Salon Company

----------------------

BETWEEN
	THE BANK OF EAST ASIA, LIMITED	Plaintiff
	and
	LABOUR BUILDINGS LIMITED	1st Defendant
	CHINA STATES LIMITED	2nd Defendant
	HONG KONG INTERNATIONAL FRATERNITY ASSOCIATION OF HEILONGJIANG LIMITED	3rd Defendant
	CHANCE LAND INTERNATIONAL LIMITED	4th Defendant
	YIM SHUI FONG	5th Defendant
	INVEST CHINA LIMITED	6th Defendant
	WORLD HONEST HOLDING LIMITED	7th Defendant
	DAISY DECORATIVE TIN (HONG KONG) LIMITED	8th Defendant
	SOUTH METAL CONSTRUCTION (a firm)	9th Defendant
	CHRISTIAN CORNERSTONE CHURCH	10th Defendant
	MALTESE MUSIC ART AND EDUCATION CENTER (a firm)	11th Defendant
	LAU SHUT HON	12th Defendant
	COSMOS ENERGY INTERNATIONAL (HK) LIMITED	13th Defendant
	IDEALTOURS CENTER LIMITED	14th Defendant
	GOLF (CHINA) LIMITED	15th Defendant
	SASA BRIDAL SALON COMPANY (a firm)	16th Defendant

----------------------

Before: Hon Rogers VP in Chambers

Date of Hearing: 18 June 2008

Date of Decision: 18 June 2008

----------------------

D E C I S I O N

----------------------

1. This is an application for stay of execution of a judgment sum which totals more than $90 million, essentially on a mortgage. The trial lasted 40 days or more and the judge had no hesitation in giving judgment for the Plaintiff. There are some $14 million in costs which are owing which brings the total amount to over $100 million altogether.

2. The application for stay this morning, comes after a long history of interim applications, which have all been refused - or ultimately refused, at any rate. This morning, it is put on the basis that the 1st Defendant has entered a sale and purchase agreement for $160 million which would not only pay off the bank what it is owed, plus the costs, but would also pay the 2nd Defendant $28 million in respect of the hotel guesthouse licence which it now has.

3. The person who is apparently behind the purchase is a financier and what his interest is one does not know. It is likely that others are behind this purchase. Alternatively, it is possible that the purchaser might want to sell the building on and act as a confirmor. It may be that the entity behind this sale and purchase is the Far East International Holdings Limited, in respect of which company the purchaser, or the person who is behind the purchaser, which is a newly formed company, owns 15 per cent. That entity, the Far East International Holdings Limited, has had hotel interests for some time.

4. But all this is no more than speculation because as Mr Whitehead has pointed out we have absolutely no evidence from Mr Sin, who is behind the new company, as to what his intention is and how he intends to raise money. Clearly, looking at his assets, he is going to have to raise a considerable amount of money in order to finance the purchase of this building.

5. To my mind, however, this boils down to a very simple point. When these applications for a stay were first made, it was on the basis that the 1st Defendant was in danger of losing an asset, namely, the building, and the building had a certain amount of value to it over and above the cash value which it owed the bank. It might be said that it also had a sentimental value. Nevertheless it was put on the basis it was carrying on a business in conjunction with 2nd Defendant. That business is a hotel business, which apparently was only started as a means of raising money to finance the litigation itself.

6. In my view, this really comes down to this - that now, this application is not put on the basis of wanting to preserve an asset. It is wanting to get more money out of the sale of this building, which event is now considered to be inevitable. In my view, there is no reason to suppose that if the stay is not granted and the worst comes to the worst - the bank sells the building - the bank will not sell it for the maximum amount that it could. Indeed, there is nothing to stop the purchaser dealing with the plaintiff, and if this is a genuine purchase, the purchasing company can come along and deal with the plaintiff and I have no doubt the plaintiff would be very happy to sell it, if there is a proper sale which goes through.

7. On the face of it, I am not convinced today that the sale and purchase agreement is not something which the purchaser could get out of, if for no other reason I am not entirely convinced that some loophole cannot be found on the basis that there has to be a transfer of the hotel licences which might not go through because they are subject to government approval.

8. In those circumstances, I do not consider that the stay should be granted and I refuse the application for a stay.

(Anthony Rogers)
Vice-President

Mr Robert Whitehead SC and Mr Steven Kwan, instructed by Messrs Wilkinson & Grist, for the Plaintiff/Respondent

Mr Simon Westbrook SC, instructed by Messrs Robertsons, for the 1st Defendant/1st Appellant

Mr Nigel Aiken SC and Mr Vincent Lung, instructed by Messrs David W T Chan & Co., for the 2nd Defendant/2nd Appellant

CACV 33/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 33 OF 2008

(ON APPEAL FROM HCMP NO. 769 of 2002)

----------------------

	IN THE MATTER of Order 88 of the Rules of the High Court
	AND
	IN THE MATTER of the property known as No. 11 Changsha Street, Kowloon (All those portion of Kowloon Inland Lot No. 7339)
	AND
	IN THE MATTER of a Debenture dated the 29th Day of October 1999
	AND
	IN THE MATTER of a Tenancy Agreement dated 20th October 2001 made between Labour Buildings Limited and China States Limited
	AND
	IN THE MATTER of a Sub-Lease dated 16th November 2001 made between China States Limited and Hong Kong International Fraternity Association of Heilongjiang Limited
	AND
	IN THE MATTER of a Sub-Lease dated 22nd November 2001 made between China States Limited and Chance Land International Limited
	AND
	IN THE MATTER of a Sub-lease dated 19th November 2001 made between China States Limited and Yim Shui Fong
	AND
	IN THE MATTER of a Sub-Lease dated 28th November 2001 made between China States Limited and Invest China Limited
	AND
	IN THE MATTER of 2 Sub-Leases respectively dated 23rd January 2002 and 29th January 2002 made between China States Limited and World Honest Holdings Limited
	AND
	IN THE MATTER of a Sub-Lease dated 29th January 2002 made between China States Limited and Daisy Decorative Tin (Hong Kong) Limited
	AND
	IN THE MATTER of a Sub-Lease dated 29th January 2002 made between China States Limited and South Metal Construction
	AND
	IN THE MATTER of a Sub-Lease dated 5th February 2002 made between China States Limited and Christian Cornerstone Church
	AND
	IN THE MATTER of a Sub-Lease dated 9th February 2002 made between China States Limited and Maltese Music Art and Education Centre
	AND
	IN THE MATTER of a Sub-Lease dated 29th January 2002 made between China States Limited and Lau Shut Hon
	AND
	IN THE MATTER of 2 Sub-Leases respectively dated 9th February 2002 and 21st February 2002 made between China States Limited and Cosmos Energy International (HK) Limited
	AND
	IN THE MATTER of a Sub-Lease dated 28th February 2002 made between China States Limited and Idealtours Centre Limited
	AND
	IN THE MATTER of a Sub-Lease dated 27th February 2002 made between China States Limited and Golf (China) Limited
	AND
	IN THE MATTER of a Sub-Lease dated 1st March 2002 made between China States Limited and Sasa Bridal Salon Company

----------------------

BETWEEN
	THE BANK OF EAST ASIA, LIMITED	Plaintiff
	and
	LABOUR BUILDINGS LIMITED	1st Defendant
	CHINA STATES LIMITED	2nd Defendant
	HONG KONG INTERNATIONAL FRATERNITY ASSOCIATION OF HEILONGJIANG LIMITED	3rd Defendant
	CHANCE LAND INTERNATIONAL LIMITED	4th Defendant
	YIM SHUI FONG	5th Defendant
	INVEST CHINA LIMITED	6th Defendant
	WORLD HONEST HOLDING LIMITED	7th Defendant
	DAISY DECORATIVE TIN (HONG KONG) LIMITED	8th Defendant
	SOUTH METAL CONSTRUCTION (a firm)	9th Defendant
	CHRISTIAN CORNERSTONE CHURCH	10th Defendant
	MALTESE MUSIC ART AND EDUCATION CENTER (a firm)	11th Defendant
	LAU SHUT HON	12th Defendant
	COSMOS ENERGY INTERNATIONAL (HK) LIMITED	13th Defendant
	IDEALTOURS CENTER LIMITED	14th Defendant
	GOLF (CHINA) LIMITED	15th Defendant
	SASA BRIDAL SALON COMPANY (a firm)	16th Defendant

----------------------

Before: Hon Rogers VP in Chambers

Date of Hearing: 2 June 2008

Date of Decision: 2 June 2008

----------------------

D E C I S I O N

----------------------

1. This is a last-minute application by the defendant, again for a stay of execution pending the hearing of the actual stay on the 18th of this month. The way things have gone, however, the application for a stay has been heard piecemeal over the last few weeks.

2. It first came before me on 5 May, when as I indicated in the decision which I gave last week on 26 May, I was informed by counsel, and I quote again:

“...following the hearing before Gill DJ on the last application in April, and the upshot is that after a certain toing and froing between various banks, potential lenders and the defendant, subject to being provided with the relevant accounting material, which we anticipate could take place on Wednesday of this week, the banks have said that they ought to be able to come back with an answer, either an offer of financing or presumably not, within one or two weeks thereafter.”

Later, counsel said very much the same thing, that financing should be forthcoming within a couple of weeks from 5 May.

3. Come 26 May last week, again, matters had not progressed very much further and I was still being told that the financing should come within a fortnight. I was told that the banks were going to be met the next day, and so forth. It was indicated in an affirmation that was sworn the day before the application by Miss Debbie Lin Pai Ching that “Enquiries had been made in the market and Centaline Property Agency had said a buyer has been found to purchase the two hotels for $160 million as a going concern. This reinforces my optimism the banks will be prepared to make a refinancing offer. An orderly sale of the property at full market value would also provide an alternative method of repaying the judgment debt which the defendants would seriously consider.”

4. That affirmation was made on 25 May, but a lot had happened on 22 May. First of all, there had been a Board resolution of the company that the property could be sold and then there was a preliminary sale and purchase agreement, which was entered with a company called Year Harvest Investments Limited. Year Harvest Investments Limited, it has been found out, is a company which was only formed on 23 April 2008. It has no track record. The directors and shareholders would appear to be nominees, and I say no more. The preliminary sale and purchase agreement which was signed on 22 May provided for an immediate payment of $5 million, followed by a further payment of $11 million on 6 June and a final payment of $144 million which would be paid by 30 September.

5. As the matter was presented before this court on the two previous hearings, there was going to be a re-financing. Now, suddenly, one is told, “Oh, no, the property has been sold. It was sold before we came back to you last time and it was sold to the knowledge of the person who swore the affidavit three days before the previous affirmation was sworn.”

6. One hesitates to express judicial displeasure at the way that that was presented, but in my view simply, if a person comes to court for a stay of execution, it behoves them to tell the court precisely what the position is and not to play fast and loose with the court and suddenly, when the court turns around and says, “No more extensions on the basis because I am not satisfied that you are really trying to get finance or that the possibility of finance is really there,” to then turn around and say, “Oh, well, actually we have sold the property,” because it begins to look as though that sale of the property is either a sham in itself and was never intended to go through, or was just a piece of paper which the company itself was intending to wave before the bankers.

7. As it transpires, in any event, the meeting with the bank that was promised for the following day last week appears to have been aborted because the bank had found difficulties by reason of the fact that there are other people involved in this. And certainly, the re-financing is not in a position when that could go ahead and there are doubts, as Mr Whitehead has pointed out, about anything that might come from one of the other banks because that is conditional on conditions which cannot be met now, certainly without the plaintiff’s consent.

8. The sum total of it is that I am by no means satisfied about this preliminary sale and purchase agreement. In view of the way that the defendant’s witnesses have been prepared to make affirmations, I do not have confidence in anything that is said in them to the extent that that sale will go ahead. There are supposed to be substantial persons behind this, but there is nothing really to link them other than the fact that a cheque has been signed by a particular person. Whether or not that person himself is in a position to finance this purchase, on what I have been shown, I very much doubt it.

9. I regret, therefore, that I do not consider it right to exercise my discretion to extend this matter any further and I decline this application.

(Anthony Rogers)
Vice-President

Mr Robert Whitehead SC and Mr Steven Kwan, instructed by Messrs Wilkinson & Grist, for the Plaintiff/Respondent

Mr Simon Westbrook SC and Mr Jonathan Wong, instructed by Messrs Robertsons, for the 1st Defendant/1st Appellant

Messrs David W T Chan & Co., for the 2nd Defendant/2nd Appellant (Absent)

THE BANK OF EAST ASIA, LTD v. LABOUR BUILDINGS LTD AND OTHERS

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