CHENG KA YAN AND OTHERS v. GRAND XI INVESTMENTS PTE LTD AND OTHERS

HCA 1607/2022

[2024] HKCFI 1577

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1607 OF 2022

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DECISION

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Introduction

1.  By summons dated 8 May 2024 (“the Summons”), the 2^nd, 3^nd, 4^th, 5^th and 7^th Defendants (collectively “Ds”) apply for a variation of the costs order nisi made by this court in the Decision dated 30 April 2024 (“the Striking Out Decision”) whereby this court granted Ds’ application to strike out the claim of the 1^st, 2^nd and 3^rd Plaintiffs (collectively “Ps”) and to dismiss their action with costs, to be taxed if not agreed. Simply put, Ds now want their costs to be taxed on indemnity basis.

2.  Unless otherwise stated, in this Decision, this court shall adopt the abbreviations used in the Striking Out Decision.

3.  By a Consent Order dated 28 May 2024, the Summons is directed to be determined by paper disposal. It is further directed that Ds should file and serve their skeleton arguments in support of the Summons and then Ps should file and serve their skeleton arguments in opposition within 7 days thereafter. It is expressly provided that there be no further submissions without leave and there be liberty to apply.

4.  After Ps have filed their skeleton arguments on 7 June 2024, by a letter dated 18 June 2024, Ds made an application for leave to file their skeleton arguments in reply dated 17 June 2024. Ps’ solicitors immediately indicated their objection by a letter of the same date.

5.  I have read the reply skeleton of Ds. It genuinely serves as a reply submission, which an applicant is normally entitled to make. I grant leave for Ds to file and serve their skeleton arguments in reply accordingly.

Relevant legal principles

6.  The law relating to indemnity costs is well-settled and both Mr Law SC for Ds and Mr Kok for Ps refer to Town Planning Board v Society for Protection of Harbour Ltd (No.2) (2004) 7 HKCFAR 114. The following guidance given by Li CJ at §§15-18 is instructive:

(1)  The courts in this jurisdiction have repeatedly emphasised that the successful party should show, in order to obtain an order for costs on an indemnity basis, that the case has some “special or unusual feature”, see also Libertarian Investments Limited v Thomas Alexej Hall, FACV 14/2012, unreported, 11.3.2014 (§15);

(2)  The courts have rejected the proposition that an award of indemnity costs will only be made where a case has been brought with an ulterior motive or for an improper purpose or where there is some deception or underhand conduct on the part of the losing party (§16);

(3)  Courts have emphasised the undesirability of attempting to define the circumstances in which orders for indemnity costs are to be made. It has been said that

“…the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be ‘appropriate’.”

(Macmillan v. Bishopsgate Investment Trust Ltd, per Millett J; Sung Foo Kee Ltd v. Pak Lik Co. (A Firm) at 575E-576F, per Godfrey JA; see also Choy Yee Chun v. Bond Star Development Ltd at 1334G-1335I, per Stock J) (§17).

(4)  In relation to the award of costs generally, it has been accepted, as Chu J pointed out, that while

“…the grounds [upon which costs are awarded] must be connected with the case. This may extend to any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation, but no further.” (emphasis supplied)

(Scherer v. Counting Instruments Ltd [1986] 1 WLR 615 at 621F, per Buckley LJ). There is no reason why this statement does not apply with equal force to the exercise of the discretion to award indemnity costs (§18).

7.  Mr Law advances three main grounds for Ds’ application. First, he submits that Ps’ claims and defences to counterclaim were rejected by this court as not only hopeless but also absurd. This court said that they were wholly devoid of merits.

8.  Secondly, Mr Law points out that Ps saw fit to re-run their arguments after they were repeatedly rejected by DHCJ Le Pichon. This alone justifies indemnity costs: Yifung Properties Ltd v Manchester Securities Corp. HCA 1341 and 1359/2014, unreported, 17.11.2014 at §41 per Au Yeung, J.

9.  Thirdly, Mr Law submits that Ps’ resistance to the summons of Ds is desperate and completely misconceived, their reliance on the transcripts is the prime example.

10.  I do not find any merit in the first ground. The strong feeling about the Ps’ case that I expressed in the Striking Out Decision only explained my conclusion that the high threshold of a striking out order was met and nothing more. I find no special or unusual feature in the conduct of Ps or their case that may be suggestive of indemnity costs.

11.  An order for indemnity costs is not necessarily concomitant of a striking out order: Kao, Lee & Yip (a firm) v Midland Realty International Ltd (HCA 2153/2007, unreported, 31.3.2010) per DHCJ Lisa Wong SC (as she then was).

12.  The second ground is stronger. Indeed, Ps ran very similar, if not identical, arguments in the present application which had been empathetically rejected by DHCJ Le Pichon in a previous interlocutory application. This court indeed made extensive references to and derived considerable assistance from the decision of DHCJ Le Pichon in my disposal of Ps’ arguments.

13.  It must be accepted that mere re-arguments are not enough to justify an indemnity costs order: Golden Sand Marble Ltd v Hsin Chong Construction Co Ltd [2005] 1 HKLRD 598. Though Golden Sand involved an appeal from an arbitration award, the observations made by Recorder Fok SC (as he then was) should be of general application. Here, Ps failed to resist Ds’ application for an interlocutory injunction application before DHCJ Le Pichon. In dealing with the striking out application, which would be determinative of the fate of their claim summarily, it is understandable that Ps would try again with their old arguments when the test was different and the threshold was much higher. They did nothing disgraceful or contemptuous. Nor can it be said that their resistance was an abuse of the process of the court.

14.  Furthermore, in the present application, Ps adduced evidence to the effect that RC had orally promised to assist them by way of testifying for them at trial. I did not reject this assertion. I merely found the oral promise of RC alone could not help Ps. However, given the alleged promise of RC, Ps might have a valid reason to resist the striking out application in the hope that there would be a trial subsequently and RC would keep his promise to testify for Ps on their case of an oral collateral contract rejected by DHCJ Le Pichon.

15.  I agree with the submission of Mr Kok that Yifung involved a very different situation. There, Au Yeung J concluded that the defendants should have indemnity costs because (1) the plaintiffs had made a desperate re-run of the arguments which had been dismissed by her Ladyship in an interlocutory injunction application and (2) the plaintiffs had revived abandoned points: see §§38 and 41 of Yifung. The three main points were rejected on legal grounds and were found to be even unable to raise a serious question to be tried for the purpose of the plaintiffs’ application for interlocutory injunctions. There was nothing the plaintiffs could do to improve their position in the subsequent application for striking out their claim.

16.  The facts of the present case are a far cry from that of Yifung. At least, Ps sought to rely on an oral promise of RC additionally to make their case of a collateral contract appear to be more plausible and credible.

17.  The third ground has no merits. I do not find there was any special or unusual in Ps’ unsuccessful resistance to Ds’ striking out applications. Their arguments were hopeless on the evidence and their reliance on the Transcripts was misplaced. These conclusions, without more, led to my grant of the striking out order only. I did not find anything untoward in the conduct of Ps which would prompt me to consider indemnity costs.

18.  I have considered all other matters in the skeleton arguments of Mr Law. I do not think that those matters, singularly or cumulatively, could justify an indemnity costs order.

Conclusion and order

19.  For the reasons given, I do not think that I have good grounds to exercise my discretion to order indemnity costs. The Summons should be dismissed and I so order.

20.  There is no reason why costs should not follow the event. Ds should pay Ps’ costs of the Summons including all the costs reserved, to be taxed if not agreed.

21.  It remains for me to thank Mr Law and Mr Kok for their helpful assistance in this matter.

Mr Martin Kok, instructed by Tung, Ng, Tse & Lam, for the 1^st to 3^rd Plaintiffs

Mr MC Law SC, instructed by Hogan Lovells, for the 2^nd, 3^rd, 4^th, 5^th and 7^th Defendants

HCA 1607/2022

[2024] HKCFI 1194

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1607 OF 2022

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D E C I S I O N

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Introduction

1.  This is an application of D2, D3, D4, D5 and D7 (collectively “Ds”) by summons dated 8 November 2023 (“the Ds’ Summons”) for an order that Ps’ claims be struck out and their action be dismissed and that summary judgment on the counterclaim of Ds be entered against Ps.

2.  In the Ds’ Summons, the grounds of striking out Ps’ claims relied upon by Ds include that the claims are scandalous, frivolous or vexatious; they may prejudice, embarrass or delay the fair trial of the action; and/or they are otherwise an abuse of the process of the court.

3.  The dispute among the parties arose from a facility agreement dated 15 March 2022 (“the Facility Agreement”) in which D1 was the lender and D4 was the borrower. Essentially Ps seek to avoid D1’s enforcement of its rights under the Facility Agreement and Ds’ counterclaim is the flip side of the coin.

4.  Mr Wong appearing for P1 to P3 with Mr Kok and Mr Law agree that Ds’ striking out application and their summary judgment should stand or fall together.

Background facts

5.  D4 took out a summons dated 6 December 2022 (“the Injunction Summons”) for, among other things, an interlocutory injunction against P1 and P2, former directors of D4 restraining them from holding themselves out as directors of D4. DHCJ Le Pichon disposed of the Injunction Summons by way of her decision handed down on 31 March 2023 (“the Decision”). Similar issues were canvassed in the Decision and both Mr Wong and Mr Law refer extensively to the Decision at the hearing.

6.  In the Decision, the learned deputy judge set out clearly the background facts leading to the commencement of this action. Such facts are mostly evidenced by contemporaneous documents and not controversial. Most of the background facts narrated below are taken from the summary of the learned deputy judge in the Decision.

7.  First, an introduction of the key personnel in this action is necessary. D4 is the owner and developer of a first-hand luxurious residential development project comprising 400 residential units and 200 parking spaces in Ho Man Tin known as “Grand Homm” (“the Development”).

8.  D4 was controlled and beneficially owned by one Mr Pan Sutong (“Pan”) through various BVI companies. D6 is the 100% direct holding company of D4. Pan had long been the employer of P1 and P2 prior to his bankruptcy on 8 July 2022.

9.  Prior to their removal purportedly pursuant to the Facility Agreement on 10 November 2022, both P1 and P2 were the directors of D4 and D6 and P3 was the director of D5 before she was removed on 14 November 2022.

10.  The sale of the units of the Development is governed by the Sales of First-hand Residential Properties Authority (“the SFRA”) and the Residential Properties (First-hand Sales) Ordinance, Cap.621 (“the SFRA Ordinance”).

11.  For the purpose of the Development, D4 obtained financing of approximately HK$7.2 billion from various financiers including Industrial & Commercial Bank of China (Asia) Ltd (“ICBC”) under a facility agreement (“the 2017 FA”).

12.  D5 was an associate company of D4 and it provided mortgage loans to purchases of units in the Development. It is wholly owned by Star Dimension Global Limited (“Star Dimension”) and was also under the control of Pan.

13.  Pre-sale of the units commenced in June 2019 was not satisfactory. D4 suffered liquidity problems arising from shortage of sale proceeds. D4 even had difficulties in paying its main contractor, Gammon Engineering & Construction Company Limited (“Gammon”).

14.  D4 hence required further financial arrangements in order to continue the construction of the Development. In May 2020, it entered into a loan facility agreement with Outstanding Management Consultation Limited (“OMCL”) for a loan facility of HK$500 million (“the OMCL Loan”).

15.  Notwithstanding this loan facility, the liquidity problem persisted and Gammon suspended all construction works in about March 2021 due to D4’s inability to settle outstanding construction fees. Worse still, the pre-sale consent was withdrawn by the Government in August 2021. As a result, pre-sale of the units in the Development was suspended and D4’s liquidity problem was further exacerbated.

16.  In January 2022, ICBC appointed receivers over the shares of D4 pursuant to the 2017 FA.

17.  D4 decided to refinance the 2017 FA on the basis of the estimates of Gammon that the construction of the Development could be completed in 6 months and Colliers’ valuation of the Development in excess of HK$17 billion which well exceeded the indebtedness of D4. D4 was obviously keen to complete the construction of the Development and it must first pay Gammon the outstanding construction fees so that construction could be resumed.

18.  Against this backdrop, the Facility Agreement was entered into. After many preliminary discussions from December 2021 to January 2022, Pan together with P3 met Raymond Chan (“RC”) formally on 14 January 2022. RC was the managing director of Oaktree Global Opportunities Xb and XI Funds (“Oaktree”). Oaktree solely owns D1 as its special purpose vehicle.

19.  After the meeting, RC made an offer of a facility of HK$7.2 billion contained in a draft term sheet sent to D4 on 17 January 2022.

20.  Eventually, on 15 March 2022, D1 (as the agent) entered into the Facility Agreement with, among other persons, D4 (as borrower) and D7 (as security agent). Under the Facility Agreement, a loan of HK$7.5 billion was advanced to D4 on 30 March 2022 to enable D4 to resume construction of the Development.

21.  There are certain provisions in the Facility Agreement to safeguard the interest of D1. Various securities were provided to secure the loan including a debenture over the entire undertaking of D4 and a charge over the entire issued share capital of D4 together with a property mortgage over the Development. Since the Development was due under construction, the property mortgage could not be registered until the issuance of the certificate of compliance on 29 August 2022.

22.  Each of P1 and P2 was required to sign and deliver to D7 undated notice of resignation and an authorization letter, authorising D7 to date the resignation letters as and when the security had become enforceable.

23.  It is noteworthy that the Facility Agreement was subject to various conditions precedent including the submission of Ps’ “Business Plan” including a Sales Plan as Schedule 13 to the Facility Agreement. The Sales Plan indicated the contemplated sales in August and September yielding net revenue of almost HK$990 million.

24.  On the other hand, D5 was also in financial difficulties. One of the sources of funds of D5 is Xinhua Financial Network Limited (“Xinhua”). D5 and Xinhua entered into a written facility agreement dated 23 November 2020 (“BT FA”) which was subsequently amended and supplemented by several written agreements signed by the parties.

25.  Under the BT FA, Xinhua advanced a loan in the principal amount of HK$100 million to D5 (“BT Loan”).

26.  Pursuant to the BT FA, Star Dimension as chargor executed a security deed to provide a share charge over the entire issued share capital of D5 in favour of Xinhua as lender as security for repayment of the BT Loan.

27.  D5 was unable to make repayment under the BT FA and eventually defaulted the BT Loan. As a result, on or about 4 November 2021, Xinhua appointed receivers to take control of D5. On 7 December 2021, Xinhua enforced its security over the shares and assets of D5.

28.  Oaktree and Pan then embarked on negotiation in relation to the refinancing of the BT Loan. It led to the execution of a Deed of Amendment dated 8 June 2022 by D1 and D4 (“the Deed of Amendment”) whereby it was agreed that a further loan in the US dollar equivalent of HK$122 million was to be advanced to D4. The following arrangements were made in relation to the further loan.

29.  First, D1 and Xinhua entered into a loan sale and purchase agreement and an assignment deed both dated the 8 June 2022 whereby D1 as purchaser and assignee acquired from Xinhua as seller and assignor all its rights under or in connection with the BT FA.

30.  Then, by a back-to-back loan sale and purchase agreement and an assignment deed also dated 8 June 2022, D4 as buyer and assignee acquired from D1 as seller and assignor all its rights under or in connection with the BT FA.

31.  The upshot was that D1 bought out and stepped into the shoes of Xinhua in respect of the BT FA. Accordingly, Xinhua ceased to be a creditor of D5 and the receivers appointed by Xinhua resigned on 8 June 2022.

April Default Notice

32.  The liquidity problems of D4 and D5 were always concerning. D1 altogether issued two default notices. Firstly, on 27 April 2022, D1 served on D4 a default notice (“the April Default Notice”). It related to issues arising out of the OMCL Loan.

33.  In the April Default Notice, D1 claimed that it had learnt from public news reporting that OMCL had commenced an action against D4 in the High Court under HCA 321/2022 (“the OMCL Action”). D1 further found out from the Statement of Claim filed therein that D4 had procured the OMCL Loan, which had not been disclosed to D1 prior to the execution of the Facility Agreement, and defaulted repayment of the same, resulting in the OMCL Action. The total outstanding indebtedness of D4 arising from the OMCL then stood at HK$811 million (“the OMCL Indebtedness”). Apart from the OMCL Indebtedness, D4 owed a third party an aggregate sum of HK$103,776,000 which represented the amount the third party paid OMCL on behalf of D4 under the Facility Agreement.

34.  D1 considered that the non-disclosure of the OMCL Indebtedness in the financial statements delivered to D1 as conditions precedent pursuant to the Facility Agreement constituted a breach of representation and this was an Event of Default under Clause 23.4 of the Facility Agreement.

35.  The OMCL Indebtedness was hence unpermitted financial indebtedness and this was another Event of Default.

36.  Lastly, D1 also took the position that the OMCL Action would adversely affect its interests and hence it constituted an Event of Default under Clause 23.16(a) of the Facility Agreement.

37.  P1 signed on the April Default Notice to indicate the agreement and acceptance of the same by D4.

38.  On 4 May 2022, P1 on behalf of D4 issued a letter to D1 alleging that D4 had orally informed D1 of the OMCL Loan before the signing of the Facility Agreement and the OMCL Loan was applied to pay the outstanding construction costs of Gammon. Thus, D4 denied any default or the existence of any Event of Default.

39.  Despite the April Default Notice, D1 did not enforce the Facility Agreement and it continued to negotiate with Pan to acquire the BT Loan from Xinhua with a view to total control of the entire financing structure for the Development.

40.  In Clause 5.1(a) of the Deed of Amendment resulting from such negotiation, P1 on behalf of D4 expressly confirmed its knowledge and acceptance of the occurrence of the Events of Default referred to in the April Default Notice and Clause 5.1(d) made it clear that the Deed of Amendment was delivered without prejudice to any rights of D1 in relation to any outstanding default including those Events of Default referred to in the April Default Notice.

October Default Notice

41.  The second Default Notice was issued on 3 October 2022 (“the October Default Notice”). It was issued on the basis that D4 had failed to pay accrued interest pursuant to 8.2 of the Facility Agreement by the deadline of 30 September 2022. In spite of the October Default Notice, D4 was unable to pay the accrued interest and default interest had started to accrue on the unpaid sum on and from 30 September 2022. This Event of Default is continuing pursuant to Clause 1.2 of the Facility Agreement.

42.  In light of all the Events of Default, D1 decided to take enforcement actions. First, on 10 November 2022, D1 issued to D4 an acceleration and demand notice for immediate payment of US$1,021,170,586.03 being the aggregate of all outstanding loans, accrued interest, default interest and all other amounts outstanding under the Facility Agreements.

43.  D2 and D3 of PricewaterhouseCoopers were appointed as joint and several receivers and managers of D4 and D6 on 10 November 2022. The undated resignation letters previously signed by P1 and P2 were dated and they ceased to be the directors of D4 and D6 with immediate effect. Resolutions were passed to appoint the receivers as directors of D4 and Paul William Christmas Young, Ho Yen Chung and Marcus Nicola Paciocco, who are the nominees of D2 and D3, as directors of D6.

44.  By a letter dated 11 November 2022 (“the Reply Letter”), P1 raised objections to the enforcement action denying any Events of Default. P1 further demanded that D2 and D3 should not hold out as receivers of D4 and P1 and P2 should not be removed as directors.

45.  On the other hand, D1 further took enforcement actions in respect of D5 and on 14 November 2022, D1 issued acceleration and demand notices to D5 and Pan. D2 and D3 were appointed as joint and several receivers and managers over the shares and assets of D5. They were also appointed as additional directors of D5 with immediate effect whereas P3’s undated resignation letter was dated at the same time. P3 was then removed from her directorship of D5.

46.  All Ps issued a joint letter dated 16 November 2022 in person (“the Joint Letter”) and they protested against the appointments of the joint and several receivers and managers and the appointments and removal of directors by the receivers in both D4 and D5. They indicated that they would commence legal proceedings in due course.

47.  By a letter dated 18 November 2022, D3 requested P3 to provide the receivers with all the books and records of D5 in her possession by 24 November 2022.

48.  On 18 November 2022, Ps commenced this action by the writ filed herein. In the Indorsement of Claim, Ps, in the main, seek declaratory relief to the effect that their terminations as directors of D4, D5 and D6 and the appointments of D2 and D3 in their place are invalid. They also seek injunctions against D2 and D3 to restrain them from acting or holding themselves out as directors and/or joint and several receivers and managers of D4, D5 and D6.

49.  Ps refused to accept their removal of their directorships and denied the validity of the enforcement actions taken by D1. They refused to provide D2 and D3 the books and records of D4 and even blocked their access to the bank account of D4. This prompted D4 to issue the Injunction Summons.

These proceedings

50.  On 9 December 2022, Harris J made an interim injunction against P1 and P2 on the Injunction Summons. At the substantive hearing on 28 February 2023, submissions were made by leading counsel (not Mr Wong) on behalf of P1 and P2 on why D4 was not entitled to take enforcement actions. In the Decision, DHCJ Le Pichon rejected all such submissions after a detailed analysis and concluded that she had no hesitation in granting the receivers the reliefs sought in the Injunction Summons.

51.  On 5 June 2023, the learned deputy judge refused to grant P1 and P2 leave to appeal. P1 and P2 renewed their application for leave to appeal in the Court of Appeal on 19 June 2023. The application was dismissed by the Court of Appeal by consent on paper.

52.  In the Amended Statement of Claim, which Ds now seek to strike out, Ps seek declaratory relief for the purpose of invalidation of the enforcement actions taken against D4, D5 and D6 pursuant to the Facility Agreement and the BT FA.

53.  In the Defence and Counterclaim, Ds insist on D4’s entitlement to enforce the Facility Agreement, the BT FA and the security granted in connection with the BT Loan. By their counterclaim, Ds seek declarations and injunctions to confirm the validity of their enforcement actions and compel Ps to accept the same.

Relevant legal principles

54.  The general principles relating to striking out applications and summary judgment applications are well established. Both Mr Wong and Mr Law helpfully refer some relevant authorities to this court. Nevertheless, I do not find it necessary to set out the principles here save the following.

55.  Mr Wong reminds this court that a striking out order is a draconian remedy and can only be granted in a plain and obvious case. The court should not strike out a claim just because it is weak or improbable. The threshold is that the claim must be so obviously unsustainable and impossible. Moreover, there should be no trial on affidavit and disputed facts are to be taken in favour of the party whose pleading is under attack.

56.  Mr Wong stresses that the findings of DHCJ Le Pichon in the Decision cannot assist Ds since they were made on an interlocutory basis. The application determined by the learned deputy judge was different and it did not concern the BT FA at all. P3 was not even a party to the Injunction Summons.

57.  In addition, the learned deputy judge did not have the benefit of the full pleadings filed by the parties too. Mr Wong urges this court to scrutinize the evidence and consider the present application independently bearing in mind the high threshold that Ds are required to meet.

58.  Mr Law highlights the summary of the principles on summary judgment of DHCJ Lisa Wong SC (as she then was) in Menfond Electronic v Wong Wang Tat Victor [2013] 2 HKC 259. I do find the summary helpful and in particular the following part at §61, p.284C-D;

“In assessing the credibility of the defendant’s factual case, while the court will not embark upon a mini-trial on affidavits evidence, the court is not obliged to suspend its critical faculties and assume that the defendant’s evidence is accurate. If having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the court must say so.”

59.  In Lam Kit Sing v Chungshan Commercial Association Hong Kong, HCA 2011/2014 (unreported, 29 June 2016), at §18, G Lam J (as he then was) said this,

“… There are authorities that show that the court’s power to strike out a pleading can be exercised where it is plain and obvious that the plaintiff’s case has no factual basis: Oh Jae-Hoon, Eugene v Richdale [2004] 4 HKC 315, at paragraph 15, or has no ‘solid basis capable of proof’ and is a ‘myth’ with ‘no substantial foundation’, per Lord Herschell in Lawrence v Lord Norreys (1890) 15 App Cas 210, 220, or presents ‘a tissue of improbabilities which ought not to be sent to proof’, per Lord Watson at page 222; see also Overseas Trust Bank v Coopers & Lybrand [1990] 1 HKLR 568 at 583. Thus if a plaintiff pleads as a fact something which can clearly be shown to be incontrovertibly false, then on an application to strike out on that basis the court is not bound to accept the allegation as true and to proceed on a fictional basis.”

The present applications

60.  It is imperative to examine the primary allegations of Ps in their pleaded case.

61.  For the enforcement actions taken against D4 and D6, P1 and P2 say that D1 was not entitled to take such actions by reason of (1) an oral representation, (2) an oral agreement and (3) P1’s breach of an implied term.

62.  I shall first deal with the alleged oral representation and the alleged oral agreement. It is pleaded that throughout various meetings between January to March 2022, in order to induce D4 to enter into the Facility Agreement, RC on behalf of Oaktree and D1 represented to and promised D4 that notwithstanding the terms of the Facility Agreement to be made, Oaktree and D1 would not enforce its strict terms and would allow D4 to sell the units in the Development to repay the refinancing loan and interest within a reasonable time (“the 1^stRepresentation”).

63.  Ps goes on to plead the oral agreement (“the 1^st Oral Agreement”), which is based on the 1^st Representation, in the following terms:

(1)  Oaktree (or its subsidiary, i.e. D1) would become the refinancer of D4 and it would enter into the Facility Agreement with D4 and

(2)  Oaktree (or its subsidiary, i.e. D1) would not enforce the strict terms of the Facility Agreement, and would allow D4 to sell the units in the Development to repay the refinancing loan and interest within a reasonable time.

64.  Thus, it is evident that the 1^st Representation and the 1^st Oral Agreement are based on the same factual allegation. The 1^st Oral Agreement is essentially an oral collateral agreement. Mr Wong highlights to this court that in Bank of China v Fung Chin Kan (2002) 5 HKCFAR 515, at §55, Litton NPJ (with whom the other members of the Court agreed) observed that the modern tendency is to take a far less restrictive view on collateral agreements. Litton NPJ further cited the following passage in Chitty on Contracts (28^th ed.) Vol.1, §12-005,

“It is undoubtedly true that the courts are nowadays much more willing to accept that a pre-contractual assurance gives rise to a collateral contract, so that such collateral contracts are no longer rare …”

65.  At §57, Litton NPJ stated the test for ascertaining a collateral agreement as follows,

“A collateral agreement, like any other contract, must be objective viewed, so the test must be this: On the totality of the evidence, must the parties be taken to have intended that the representation made by one of them should form part of the basis of the legal relationship between them?”

66.  Next, Mr Wong draws my attention to Hsu Ming Chi v Lam Shu Chit and Ors., HCCL 8/2013, (unreported, 22.10.2014) in which Ng J dealt with an application for leave to amend the Statement of Claim. The defendant opposed the proposed amendments on the ground that the plaintiff sought to add a new plea of an oral collateral term to the effect that the security of a loan would not be enforced. The learned judge referred to the relevant dictum of Litton NPJ in Fung Chin Kan and said this at §32,

“As the authorities show, if the objection is put on the basis that the plea is bound to fail, the court will take the applicant’s proposed pleaded case to the highest. As submitted by Mr Neoh SC, in the present case, it means the Defendants would have to show that the plea is incapable of belief by any trial judge. But the viability of this plea of Oral Collateral Term can only be assessed on ‘the totality of the evidence’, particularly, in the light of the credibility of the Plaintiff and Lam. This is clearly a matter which calls for viva voce evidence at trial when the testimony of the witnesses can be tested. It is difficult to see how, at the interlocutory stage, the court can resolve the matter in favour of the Defendants and rule that the plea of Oral Collateral Term is bound to fail.”

67.  Mr Wong submits that Hsu Ming Chi is very similar to the present case and, likewise, the Ps’ plea of an oral collateral agreement here cannot be dismissed at the interlocutory stage without hearing the viva voce evidence of the persons involved at trial. In particular, Mr Wong emphasizes that RC has agreed to testify at trial if he is subpoenaed or ordered to do so.

68.  For the plea of the 1^st Representation and the 1^st Oral Agreement, P1 and P2 rely on the affirmation evidence of Pan and P3. RC has not filed any evidence. I have gone through their evidence in light of the submission of Mr Wong.

69.  Despite the able submission of Mr Wong, I am not convinced that the allegation of the 1^st Representation and the 1^st Oral Agreement can get off the ground. I agree with the observations of DHCJ Le Pichon in the Decision that the evidence adduced by Ps concerning the 1^st Representation and hence the 1^st Oral Agreement is “plainly riddled with seemingly unsurmountable difficulties.” (§57 of the Decision) and her conclusion that there is no credible evidence to support the existence of a collateral agreement (§68 of the Decision).

70.  First, the 1^st Representation and the 1^st Oral Agreement do not make any commercial sense and are simply incredible. As observed by the learned deputy judge (§63 of the Decision), taken to their logic conclusion, the lender would not be able to exercise any of its rights to enforce the substantial security as long as D4 was selling units to make repayment. This is absurd.

71.  Under the Facility Agreement and the BT FA, enormous sums were advanced to D4 and D5. It is not in dispute that Oaktree and D1 expected that D4 would make repayments by the use of the sale proceeds of the units of the Development. The Sales Plan attached to the Facility Agreement as Schedule 13 was prepared by D4 and it presented a rosy picture. According to the Sales Plan, sizable net cash flow should have been generated from the sales of the units in August and September 2022 and D4 should have no liquidity issue to make interest payment on 30 September 2022.

72.  But even given the expectation of the parties that interest payment would be made out of the sale proceeds, it does not begin to suggest that, in this massive investment project, D1 would make such a representation and/or enter into a binding agreement with D4 that no enforcement actions could be taken so long as D4 was selling the units within the reasonable time. I am in agreement with the learned deputy judge’s observation (at §63 of the Decision) that no seasoned financier/lender would agree to such a course and place himself in such a difficult position and deprive himself of remedies in case of the defaults of his borrower.

73.  Second, such a representation and/or oral collateral agreement should provide D4 with complete protection against enforcement actions. It is only inexplicable that Ps and D4 made no mention about it in all the contemporaneous documents including the Reply Letter and the Joint Letter issued in November 2022 when being threatened with enforcement actions and even when such enforcement actions were taken. They should at least send D1 a reminder of the representation and/or the oral collateral agreement so as to forestall or avoid any enforcement actions. They opted to say nothing about it.

74.  As pointed out by the learned deputy judge (§§58 and 59 of the Decision), upon receipt of the October Default Notice, D4 should have drawn to the attention of D1 the 1^st Representation and the 1^st Oral Agreement and asked D1 to withhold any enforcement actions. Instead, D4 issued a letter dated 3 November 2022 to D1 and it only made a request for an extension for the overdue interest payment until 31 December 2022. This is inexplicable. What D4 did literally negates the existence of the 1^st Representation and the 1^st Oral Agreement.

75.  The same point can be made about the email of Tommy Ting dated 11 November 2022 (cc to P3). In the email, Tommy Ting as a director of the joint sole sales agents of the Development indicated his optimistic forecast of the sale activities and he merely made a request to D1 for an extension of time to pay the overdue interest payment until 31 December 2022. Had there been the 1^st Representation and the 1^st Oral Agreement, they should have been featured in the email.

76.  Lastly, the learned judge pointed out (at §62 of the Decision) that in the Writ, there is no mention of any collateral agreement. Mr Law makes the same observation in his submission.

77.  Mr Wong submits that in the Writ, Ps are just required to set out the reliefs they claim against Ds for in this action such as various declarations and injunctions. Mr Wong is right: O.6 r.2(a), Rules of the High Court. But I would observe that the breach of the alleged collateral agreement(s) form the legal basis for Ps’ claims for such reliefs, there is no reason why Ps did not make any reference to the alleged collateral agreements in the Writ if they ever existed.

78.  Ps sought to rely on the transcript of a recording made by Pan of a telephone conversation with RC on 26 February 2023 (“the 260223 Transcript”) at the hearing of the Injunction Summons. DHCJ Le Pichon held that it had no probative value because what RC said as recorded was not done on oath and the conversation is replete with leading questions. I agree.

79.  Now Ps rely on the transcript of another telephone conversation between Pan and RC on 5 January 2023 (“the Transcript”). The conversation took place after the issue of the Writ herein.

80.  I have gone through the Transcript. To start with, the criticism that DHCJ Le Pichon made about the 260223 Transcript is equally valid when applied to the Transcript. I am unable to attach any weight to what RC had allegedly said as shown in the Transcript.

81.  In any event, I do not think RC said anything to suggest the existence of the 1^st Representation and the 1^st Oral Agreement. It is common ground that Pan and/or D4 required the sale proceeds of the units to make payment pursuant to the Facility Agreement and the BT FA. The knowledge of RC of such a financial need of Pan and D4 cannot be equated with or suggestive of D1’s agreement to withhold enforcement actions so as to allow D4 to sell the units within a reasonable time.

82.  Moreover, after the issue of the April Default Notice, D1 did withhold enforcement actions despite the continuance of Events of Default. Yet, it did so not because of any previous representation or oral collateral agreement. As explained above, D1 did not see fit to start enforcement actions because of its intended acquisition of the BT Loan. All the rights of D1 in respect of the April Default Notice were expressly reserved in the Deed of Amendment.

83.  If anything can be made out of the Transcript, it is remarkable that Pan himself did not make any mention of the 1^st Representation and/or the Oral Agreement and directly confront RC with them and demanded him to keep his promises. There is no reason why he needed to mince his words. This speaks volume for their purported existence.

84.  Mr Wong submits that the evidence of the 1^st Representation and the 1^st Oral Agreement has improved since the hearings before the learned deputy judge. Both Pan and P3 deposed in their respective affirmations that Ps can have the collaborative evidence of RC at trial to prove their case against D1.

85.  Pan said in his affirmation that RC initially agreed to make an affirmation in support of Ps’ renewed application for leave to appeal but out of fear of potential legal actions that Oaktree and D1 might commence against him personally, RC decided against this idea. However, RC was willing to testify if he was subpoenaed or ordered to do so. Pan understands that Ps do intend to call or subpoena RC as a witness at trial.

86.  P3 gave a similar account in her affirmation and her source of information is Pan. She confirms that Ps intend to call or subpoena RC as their witness.

87.  I do not think the purported likelihood that RC may testify at trial can assist Ps on this occasion. Ps should know very well the significance of the Ds’ Summons and they should spare no effort to amass helpful evidence to substantiate their pleas of oral representation/collateral agreements in order to avoid a striking out order and an entry of final judgment against them. There is a real possibility that there would not be a trial at all and the purported promise of RC to testify would be rendered meaningless. They could not be content with a mere oral promise of RC to give supportive evidence at trial.

88.  By the time when the Decision was handed down, which is almost a year ago, Ps should know very well that the court would give weight to RC’s evidence only if it is made on oath. Ps should feel the urgency to procure RC’s affirmation evidence to avoid their claims being struck out. I too do not understand how RC could avoid being sued by Oaktree and D1 when he is only called to give live evidence at trial by subpoena without making an affirmation.

89.  This court has to assess the merits of the pleas of Ps on the evidence presently available and could not take into account any evidence that may become available at trial.

90.  Mr Wong submits that all adverse inferences must be drawn against Ds when Ds had never procured RC, who had left Oaktree, to give affirmation evidence to dispute Ps’ case. He relies on Tulllett & Tokyo International Securities Ltd v APC Securities Co Ltd [2001] 2 HKLRD 356.

91.  I find no merit in this submission. The ball is squarely in the court of Ps and they should decide whether to adduce RC’s evidence to prove their own allegations.

92.  The two local authorities cited to me by Mr Wong do not really assist Ps. I should first point out that whether an oral collateral agreement exists is a very much fact-sensitive question and has to be decided on the particular facts of a case.

93.  That said, I do not accept that a plea of an oral collateral agreement can only be proved or disproved at trial and is incapable of summary disposal. Again, each case has to be decided on its own facts. Thoroughly bad pleas of collateral agreements must be dismissed summarily.

94.  Ps cited Fung Chin Kan to DHCJ Le Pichon but as rightly pointed out by the learned deputy judge, it is plainly distinguishable on the facts. There, the existence of the alleged collateral agreement was supported by a contemporaneous draft undertaking. In the present case, there is simply no such documentary evidence.

95.  As regards Hsu Ming Chi, in allowing the plaintiff leave to amend his pleading, Ng J accepted the plaintiff’s explanation in his affirmation as to why his plea of collateral agreement was omitted in the original pleading. In the present case, there is no such explanation. Ps have long kept radio silence on why they made no reference to the oral collateral agreements in their contemporaneous documents despite the observations of DHCJ Le Pichon in the Decision.

96.  Now I turn to the 2^nd Representation and the 2^nd Oral Agreement pleaded in the Amended Statement of Claim. It is pleaded that throughout various meetings between April to June 2022, in order to induce D4 to enter into a refinancing agreement with Oaktree, RC, on behalf of Oaktree and D1, represented to and promised D4 that notwithstanding the terms of the agreements in connection with the refinancing of the BT Loan, Oaktree and D1 would not enforce their strict terms, and would allow D4 to sell the units in the Development to repay the refinancing loan and interest within a reasonable time (“the 2^nd Representation”).

97.  There is a further plea of Ps relating to another oral collateral agreement. There was an oral agreement between D4, Oaktree and/or D1 (“the 2^nd Oral Agreement”) that:

(1)  D1 would become the refinancer of the BT Loan; and

(2)  Oaktree and D1 would not enforce the strict terms of the agreements in connection with the refinancing of the BT Loan, and would allow D4 to sell the units in the Development to repay the refinancing loan and interest within a reasonable time.

98.  It is interesting to note that the 1^st Representation and the 2^nd Representation are similarly worded. So are the 1^st Oral Agreement and the 2^nd Oral Agreement.

99.  My analysis of the case of Ps on the 1^st Representation and the 1^st Oral Agreement is equally applicable to the 2^nd Representation and the 2^nd Oral Agreement. I can only come to the same conclusion that they have no credible evidence to provide any solid basis capable of proof. This plea is hopeless and is bound to fail.

100.  Ps have another cause of action and they allege that there is an implied term of the Facility Agreement that such discretion that D1 may have in granting approval to D4 to conduct the sale of units in the Development including the approval of sales documents, shall be exercised in good faith for the purpose for which the power was conferred, and not arbitrarily, capriciously or in bad faith (“the Implied Term”).

101.  The Certificate of Compliance in respect of the Development was issued on 29 August 2022. With this Certificate, D4 could sell the units in the Development subject to the consent of Oaktree and D1. However, it is alleged that they have not given any consent to commence the sale of the units in the Development since 29 August 2022.

102.  Ps allege that D1 had breached the Implied Term in that D1 deliberately delayed the sale units in the Development in bad faith and for ulterior purposes.

103.  Ps rely on an investment brochure of Oaktree dated 30 September 2022 (“the Brochure”) to make good this allegation. In the Brochure, there is a section entitled “Appendix II: Select Case Studies – Project Grand”. At the end of this section, there is a passage which reads,

“We’re working with the developer to create a sales and marketing plan for the completed units. However, we’ll likely delay this plan due to the ongoing weakness and illiquidity in the Hong Kong residential market.

When we underwrote the loan, we knew the borrower would have to sell units to service our loan. Given the delay, the borrower may take longer to make the second scheduled interest payment.”

104.  Ps complaints that it had never been given any notice of the proposed delay of the sales and marketing plan and it says that the proposed delay was not because of any condition in the Hong Kong residential market. It was merely a decision of D1 made in bad faith and for the ulterior purposes in breach of the Implied Term. D4 says that Oaktree and D1 knew that D4 would be unable to repay the interests and would be forced to default payment under the Facility Agreement and the BT FA if the sale was delayed. In such a scenario, default interest would be charged and enforcement actions could be taken against D4. Ultimately, Oaktree and D1 could even take over or acquire the Development upon a forced sale basis.

105.  Ps are unable to produce any documentary evidence to show that D1 had ever refused to give its consent for whatever reason to any proposed sale of units by D4.

106.  More importantly, this plea ignores Clauses 21.5(b) and (c) of the Facility Agreement, as noted by DHCJ Le Pichon in §97 of the Decision. D4 could in fact proceed with the sale of the units by giving D1 7 days’ prior written notice before the completion of any pre-sale or sale together with all material information. In other words, consent of D1 was not indispensable and D1 could not have hindered the sale by refusing to give consent. Ps’ complaint is clearly baseless.

107.  Ps further complain that the delay on the part of Oaktree and D1 in approving sale documents such as memoranda of understanding caused D4’s inability to make interest payments.

108.  DHCJ Le Pichon has considered this complaint in detail and concluded that this complaint is groundless. I fully agree with her analysis and have come to the same conclusion.

109.  Mr Law submits that D4 must comply with the statutory requirement in the SFRA Ordinance and the sales arrangement had to be uploaded onto the website of SFRA. However, the undisputed fact is that Ps only provided the draft sales arrangement on 4 November 2022 meaning that there could not be any sale of the units before 4 November 2022. The due date of the interest payment fell on 30 September 2022. D4’s inability to make such a payment could not be due to D1’s default. I agree with his submission.

110.  For completeness, Ps deny that there was any Events of Default in their pleading. Mr Wong very wisely said little about this at the hearing.

111.  At the hearing before DHCJ Le Pichon, it was argued that the OMCL Indebtedness had been orally disclosed before the Facility Agreement was signed. Therefore, there was no non-disclosure default.

112.  DHCJ Le Pichon rejected this contention, which is not supported by any affirmation evidence. She is clearly correct.

113.  I would add that even if there was no such non-disclosure default, there are undoubtedly other separate, material and continuing Events of Default under Clause 23 of the Facility Agreement. The April and October Default Notices were well justified and so were the enforcement actions.

Conclusion

114.  For the reasons given above, I come to the conclusion that Ds have met the high threshold in the application. I am convinced that it is plain and obvious that Ps’ claims have no factual basis. They are scandalous, frivolous and vexatious and are an abuse of the process of the court. Ps’ claims are doomed to failure and must be struck out. On the other hand, Ps failed to show any triable issues in their defence of the counterclaim of Ds. Ds are well entitled to take enforcement actions under the Facility Agreement and the BT FA due to the defaults of D4 and D5. Their counterclaim must succeed and final judgment should be entered against Ps.

115.  Accordingly, I grant the application of Ds and make an order in terms of §§1(a) and (c) and 2 of the Ds’ Summons.

116.  There is no apparent reason to depart from the general principle of costs following the event. I make an order nisi that costs of this action including the Ds’ Summons and any costs reserved be to Ds, to be taxed if not agreed.

117.  Finally, I thank Mr Wong, Mr Kok and Mr Law for their helpful assistance.

Mr William Wong SC leading Mr Martin Kok, instructed by Tung, Ng, Tse & Lam, for the 1^st to 3^rd Plaintiffs

Mr MC Law SC, instructed by Hogan Lovells, for the 2^nd, 3^rd, 4^th, 5^th and 7^th Defendants

HCA 1607/2022

[2023] HKCFI 1509

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1607 OF 2022

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BETWEEN

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D E C I S I O N

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1.  This is the application of the Plaintiffs by

(a) summons dated 4 April 2023 for leave to appeal (enclosing a draft Notice of Appeal (“NOA”)) from this Court’s Decision dated 31 March 2023 (“the Decision”) granting GT (the 4^th Defendant) an interlocutory injunction (“the Injunction Order”); and

(b) a further summons dated 13 April 2023 for (i) leave to amend the draft NOA; and (ii) an order that 3 additional terms (“the additional terms”) be added to the Injunction Order in the interim, pending the final determination of the Plaintiffs’ intended appeal.

2.  Reference should be made to the Decision for the background facts, the issues that arose for determination and the reasons stated that resulted in the Injunction Order. The nomenclature used in the Decision will be adopted in this Decision on the leave application.

3.  GT does not oppose the amendment to the draft NOA but opposes the other relief sought in the Plaintiffs’ summonses.

Applicable principles

4.  The relevant principles for granting leave to appeal are well-established. Leave to appeal under O. 59, r. 2B is not lightly granted[1]. There has to be a real chance of success to justify the granting of permission to appeal[2].

5.  While a reasonable prospect of success means an appeal with prospects that are more than ‘fanciful’ but which do not need to be shown to be ‘probable’, it is insufficient to show that the appeal is “merely arguable” and “not fanciful” for the court to be satisfied that it had a reasonable prospect of success: Hong Kong Civil Procedure 2023 §59/2A/4.

Ground 1: Serious issues to be tried/arguable defence

6.  At the heart of the Plaintiffs’ defence is the existence of RC’s Representation giving rise to a collateral agreement[3].

7.  Sub-paragraph (3) of Ground 1 asserts that there is a serious issue to be tried that “RC’s Representation was made, and the Oral Agreement (as defined §48 of Liu 2^nd) existed”. It then identified 7 matters that were said to support the Plaintiffs’ contention.

8.  The Plaintiffs’ submissions are premised on the existence of “the Oral Agreement” based on Liu’s evidence[4]. This Court’s approach (as should be evident from a proper reading of the Decision, in particular the analysis of the 2^nd line of defence (at §§49-66) under the subheading “(ii) RC’s Representation”) was to assess whether there was any credible evidence in support of “the Oral Agreement”, and concluded (at §§68 and 100) that there was not.

9.  The Plaintiffs criticized this Court for failing to have regard to the CFA’s observations in Bank of China v Fung Chin Kan (2002) 5 HKCFAR 515 at §§55 and 57 to the effect that the collateral agreement must be “objectively viewed” and the parties’ objective intention must be assessed “[o]n the totality of the evidence”.

10.  The thrust of the Plaintiffs’ submissions carried to their logical conclusion comes to this: once one party asserts, at the interlocutory stage, that there was an oral agreement between the parties, then, regardless of the evidence adduced in support, the matter must proceed to a full trial with the viva voce evidence. Those submissions were apparently based on the Plaintiffs’ reading of the Bank of China case. The necessary consequence of such a reading is that it precludes the Court from assessing whether the party asserting the existence of an oral agreement even reaches first base, that is to say, whether it has adduced credible evidence in support of such an agreement.

11.  I do not agree that the Bank of China case is authority for the proposition put forward by the Plaintiffs. At the interlocutory stage, the Court is not and cannot be precluded from evaluating and assessing objectively, whether there is credible evidence before the Court to support the Plaintiffs’ assertion.

12.  Having reviewed §§49-66 of the Decision, I stand by the reasons I have given for my conclusion.

13.  The Plaintiffs complain that in §67 of the Decision, the Court erred in relying on Linda Chan J’s observations in Re Pan Sutong. That authority was cited by GT at the hearing as to which the Plaintiffs did not comment.

14.  The remarks made in §67 were nothing more than an observation on the common features of the defence raised by Pan in a number of decided cases in which Pan was involved.

15.  The Court reached its conclusion (as to whether there was credible evidence to support the Oral Agreement) based on the evidence before the Court which it evaluated and analysed in §§49-66 of the Decision.

16.  The suggestion that the Court relied on the observations made by the judge in Re Pan Sutong in reaching its conclusion stems from an unwarranted misreading of the Decision.

17.  In my view, the Plaintiffs have failed to show that there is a serious issue to be tried. Ground 1 has no prospect of success.

Ground 1A: Grand Xi adequately compensated by damages

18.  The Plaintiffs submitted that as Grand XI is a fully secured creditor, any loss it suffers would be adequately compensated by damages and no injunction should issue.

19.  That submission was premised on the applicant for the injunction being Grand XI and not GT, that the application was “nominally taken out by GT (under the disputed control of the Receivers)”. On that basis, the Plaintiffs considered that the real protagonists in this case are GT and Grand XI, as the borrower and lender under the Facility Agreement.

20.  But unless and until the appointment of the Receivers is set aside or invalidated, the fact that the Plaintiffs dispute their appointment is neither here nor there. It is no reason to question the Receivers’ authority to act through GT.

21.  The Plaintiffs complain that this Court did not properly consider Grand XI’s position as the secured creditor and that the true position is that stated by Hoffmann J (as he then was) in Gomba Holdings UK Ltd and Others v Homan and Another [1986] 1 WLR 1301 at 1305C that although a receiver is “nominally the agent of the company, his primary duty is to realise the assets and interests of the debenture holder and his powers of management are really ancillary to that duty”.

22.  For my part, I cannot see that its effect is that Receivers are to be treated as synonymous with, or the alter ego of, the security holder, owing no independent duties (statutory or implied) to GT whose agents the Receivers in fact are.

23.  In Gomba, the bank exercised its right as mortgagee to appoint receivers of the assets of the plaintiffs, a group of companies. The court dealt principally with 2 motions: (a) a motion (motion 1) against the receivers requiring them to disclose full details of all disposals of assets made or proposed to be made; and (b) a motion (motion 3) by the plaintiffs to restrain the receivers from entering into any commitments to dispose of assets without giving the plaintiffs 5 days’ prior notice of their intention to do so[5].

24.  The dicta on which the Plaintiffs rely were made in the context of motion 1 for disclosure of information. That required consideration of the extent of the duty of the receiver of a company’s property to provide information to the directors during the currency of the receivership.

25.  Hoffmann J considered that a receiver’s duties as agent must depend upon the express or implied terms of the bargain between the debenture holder and the company under which he was appointed; he deduced certain principles from what the parties may be supposed to have contemplated as the commercial purpose of the power to appoint a receiver and manager; relevantly, that the receiver and manager should have the power to carry on a day-to-day process of realisation and management of the company’s property without interference from the board.

26.  In rejecting the plaintiffs' submission[6] that the directors have a continuing duty to exploit the assets of the company and that the receivers are therefore obliged to provide whatever information is necessary to enable the directors to carry out that duty, Hoffmann J stated (at 1307 D) as follows:

“I cannot accept that the Court of Appeal contemplated some kind of diarchy over all the company’s assets. This would be contrary to principle and wholly impractical. In my judgment the board has during the currency of the receivership no powers over the assets in the possession or control of the receiver.”

27.  The dicta upon which the Plaintiffs rely were made in the context of the Gomba plaintiffs seeking disclosure of information that was inimical to the interests of the debenture holder. It was in those circumstances that the interests of the security or debenture holder took precedence. Gomba is not authority for the proposition that the Receivers acting for and on behalf of GT do not owe it any duties.

28.  In my view, Ground 1A also is devoid of merit.

Ground 2: Balance of convenience

29.  The Plaintiffs submitted that this Court erred in failing to apply the proper approach as stated in Music Advance Limited v Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041 at §12 (d)[7], namely, that the Court should take “whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong”.

30.  That involved assessing the relative risk of injustice if the Court should ultimately turn out to be wrong. It was said that the Court failed to engage in the assessment exercise and erroneously focused on whether the Plaintiffs or the Receivers should be in control of GT during the interim period.

31.  Suffice it to say that from the very outset the Plaintiffs’ stance was that the injunction application concerned “the fight for control over [GT]” pending the trial of this action. That stance was put at the forefront of the Plaintiffs’ written submissions. The Plaintiffs then went on to state that the balance of convenience was in favour of discharging the Injunction Order because of the Receivers’ alleged lack of experience and expertise in overseeing and managing first-hand sales of Hong Kong residential developments and the successful marketing of the same which would lead to a “substantial depletion of GT’s value”[8].

32.  At the hearing, the Plaintiffs submitted that if the Receivers were to take control of GT, “there would be substantial and irreparable risk of harm[9]”, reiterating the Receivers’ alleged lack of experience in managing first-hand sales of residential developments and expertise to market them properly, and repackaging the alleged “substantial depletion of GTs value” into the absence of incentive for the Receivers to maximize the sale price of the units as the value of the Development far exceeds what is owed to Grand XI.

33.  Further, notwithstanding the ‘admonition’ made in footnote 10[10] of the Decision (expressing strong disapproval of the manner in which a veiled allegation of an undervalued ‘share sale’ was sought to be made), far from taking heed, the Plaintiffs have seen fit to repeat it in this application.

34.  While the Plaintiffs have singled out a “share sale” as connoting a disposal of the Development at an undervalue, a share sale is but one method of realising real property. No evidence has been adduced that a disposal by way of a share sale would necessarily result in a sale at an undervalue.

35.  In fact, the matters relied on to support the substantial and irreparable risk of harm that this Court had allegedly failed to consider had been addressed in the Decision and rejected.

36.  In my view, there is also no merit in Ground 2 which has no prospect of success.

Ground 2A: Alternative orders

37.  Alternatively, the Plaintiffs seek a variation of the Injunction Order by including 3 additional terms (collectively “the additional terms”), namely, that:

(i) GT shall not approve the transfer of the ownership of its shares without leave of the Court;

(ii) if GT intends to dispose of any of its assets of value in excess of an aggregate value of HK $50 million, it shall obtain leave of the Court; and

(iii) nothing in the Order shall prevent the Plaintiffs from taking steps in furtherance of the refinancing of the Facility Agreement.

38.  GT opposes the variation for the following reasons. The 1^st and 2^nd additional terms that formed part of Harris J’s order were imposed in circumstances where GT’s Summons was served on the Plaintiffs on 6 December 2022 returnable for substantive argument 3 days later. As the Plaintiffs submitted that they did not have sufficient time to prepare their evidence in opposition, 1^st and 2^nd additional terms were imposed to hold the ring in the interim, until the Summons could be heard substantively.

39.  GT makes the obvious point that the circumstances now prevailing are very different. The considerations that led to the inclusion of the 1^st and 2^nd additional terms in the Harris J’s order have been spent. The Plaintiffs have filed affirmations, exhibited numerous documents in support, together with detailed written submissions but they have failed to demonstrate that there is a serious issue to be tried.

40.  The evidence of the Receivers shows that according to an appraiser’s valuation report dated 16 February 2023, the market value of the majority of the units range from HK $21 million to HK $52 million. If a $50 million cap is imposed, it would be impossible for GT to launch any effective sales program.

41.  It is instructive that in Gomba, a five-day delay to any proposed disposal of assets by the receivers was considered unacceptable when the receivers were given an unrestricted right under the security documents to sell at any time.

42.  It is evident that the 1^st and 2^nd additional terms sought would dramatically interfere with and constrain (if not emasculate) the powers of the Receivers.

43.  As to the 3^rd additional term, under the terms of the Injunction Order, inter alia, the Plaintiffs must not hold themselves out as directors of GT.

44.  If the Plaintiffs are given express authority to seek to refinance the debt, GT is apprehensive that the Plaintiffs could hold themselves out as directors of GT on the pretext that they are seeking to refinance the debt[11]. It was said that it could well give rise to confusion and disruption rendering the injunction difficult to enforce.

45.  An express authorisation could be perceived to be clothing the Plaintiffs with a function normally performed by the board of directors. This could conceivably create a “diarchy” alluded to in Gomba[12] and which Hoffmann J considered to be “contrary to principle and wholly impractical” .

46.  In any event, it would not appear to be the Plaintiffs’ case that it cannot progress the refinancing exercise or that refinancing cannot take place without the 3^rd additional term. As the Receivers pointed out, the Plaintiffs had no difficulty proceeding with the proposed refinancing through Elite Ray[13] at a time when the Harris J’s order was in force.

47.  For those reasons, I see no valid basis for incorporating the additional terms into the Injunction Order.

Conclusion

48.  It will have become apparent that, for the reasons stated, the Plaintiffs’ application for leave to appeal must fail.

49.  Accordingly, the Summonses are dismissed with costs to GT, with certificate for counsel, such costs to be summarily assessed in Chambers.

50.  It is directed that (a) GT’s statement of costs be lodged within 14 days of this order; (b) the Plaintiffs’ statement of objections (limited to 3 pages) be lodged within 14 days thereafter; and (c) GT’s reply (limited to 2 pages) be lodged within 7 days thereafter.

Mr Martin Kok instructed by Tung, Ng, Tse & Lam, for the 1^st to 2^nd Plaintiffs

Mr Law Man Chung SC, instructed by Hogan Lovells, for the 4^th Defendant