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China Merchants Bank Co., Ltd (Taiyuan Branch) v Cai Sui Xin

Judgment Cited authorities 10 Cited in Precedent Map Related
Vincent
Judgment Date19 October 2018
Neutral Citation[2018] HKCFI 2358
Judgement NumberHCMP2911/2016
Subject MatterMiscellaneous Proceedings
CourtCourt of First Instance (Hong Kong)
HCMP2911/2016 CHINA MERCHANTS BANK CO., LTD (TAIYUAN BRANCH) v. CAI SUI XIN

HCMP 2911/2016

[2018] HKCFI 2358

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2911 OF 2016

____________

BETWEEN
CHINA MERCHANTS BANK CO., LTD
(TAIYUAN BRANCH)
招商銀行股份有限公司太原分行 Plaintiff
and
CAI SUI XIN 蔡穗新 Defendant
and
PROSPER TALENT LIMITED Third Party

____________

Before: Hon Lok J in Chambers
Date of Hearing: 28 December 2017
Date of Judgment: 19 October 2018

_________________

DECISION

_________________


1. This is the application of Prosper Talent Ltd (“Prosper Talent”), a third party affected by the Mareva injunction granted by Deputy High Court Judge Seagroatt on 31 October 2016 (“the Injunction”), to vary it so as to allow Prosper Talent to exercise its rights to sell certain charged shares in IRC Limited pursuant to two share charges entered between Benefit Ahead Limited (“Benefit Ahead”) as chargor and Prosper Talent as chargee dated 9 July and 4 September 2013 respectively (“the Share Charges”).

Background

2. In this action, the Plaintiff applies for a Mareva injunction in aid of foreign proceedings under s 21M of the High Court Ordinance, Cap 4.

3. On 31 October 2016, the Plaintiff, by way of ex parte application, obtained the Injunction against the Defendant restraining the latter from disposing his assets up to RMB150 million, including the IRC Shares which are referred to in paragraph 7 below. The Injunction was varied and continued by the orders of DHCJ Kent Yee and DHCJ A Lee dated 4 November 2016 and 22 February 2017 respectively.

4. Benefit Ahead is a corporate vehicle owned and controlled by the Defendant. The Defendant directly holds 5% and indirectly holds, via General Nice Group Holdings Ltd, 50% of the shares in General Nice Development (“General Nice Development”) which, in turn, holds 100% of the shares in Benefit Ahead.

5. Prosper Talent is an indirect wholly-owned subsidiary of CCB International (Holdings) Ltd (“CCBIHL”) which, in turn, is a direct wholly-owned subsidiary of China Construction Bank Corporation which is a major bank in the Mainland.

6. The Defendant and his various corporate vehicles entered into a series of commercial agreements with CCBIHL and Prosper Talent in relation to one of the Defendant’s then projects named Project Lumia which included the execution of the Share Charges.

7. The Share Charges were made as security for four secured guaranteed notes issued by General Nice Development to Prosper Talent on 9 July, 4 September, 23 December 2013 and 27 February 2014 (“the Notes”) for an aggregate principal amount of HK$305,064,600. The Share Charges are in respect of 1,163,174,000 shares owned by Benefit Ahead in a listed company known as IRC Limited (“IRC Shares”).

8. General Nice Development defaulted under the Notes on 30 December 2015. As a result, on 1 February 2016 (i.e. 9 monthsbefore the Injunction), Prosper Talent issued two notices to General Nice Development declaring there had been a default under the Notes and demanded immediate payment of the redemption amounts (“the EOD Notices”). On the same day, Prosper Talent issued two declarations of event of default (“the EOD Declarations”) to Benefit Ahead pursuant to clause 8.1 of the Share Charges, whereupon the Share Charges became enforceable.

9. Clause 8.2 of the Share Charges provides that the power of sale shall be immediately exercisable by Prosper Talent at any time on or after the occurrence of an event of default without prior notice to Benefit Ahead.

10. Prosper Talent has exercised, and intends to continue to exercise, its rights under the Share Charges. It has so far sold 281,274,000 IRC Shares in the open market between 6 December 2016 and 9 February 2017.

11. The problem is that Prosper Talent sold the IRC Shares after the granting of the Injunction and the IRC Shares held in the name of General Nice Development were expressly caught by the terms of the Injunction. The Plaintiff complains that Prosper Talent was guilty of contempt of court in disposing the IRC Shares and so the court should not entertain its present variation application.

12. Neither the Plaintiff nor the Defendant disputes the validity of the Share Charges or challenges Prosper Talent’s entitlement to exercise its right of enforcement. The Share Charges were made and the default occurred both before the granting of the Injunction, and it is common ground that the Injunction operates personally against the Defendant and it confers no beneficial interest to the Plaintiff over the IRC Shares. Had Prosper Talent sought the sanction of the court before disposing the IRC Shares, there was little hope for the Plaintiff to oppose the variation application. The issue here is therefore a narrow one: whether the court should refuse to entertain the variation application because Prosper Talent had disposed of some of the IRC Shares after the granting of the Injunction.

13. The Defendant adopts a neutral stance in respect of the variation application.

The position and argument of Prosper Talent

14. Prosper Talent’s primary position is that it is under no duty and it is not necessary to apply for a variation of the Injunction to obtain the court’s permission to exercise its disposal rights under the Share Charges.

15. According to Ms Lam, counsel for Prosper Talent, a Mareva injunction operates personally against the defendant and its purpose is not to provide a claimant with security for his claim but to restrain a defendant from evading justice by disposing assets otherwise than in the ordinary course of business so as to make it judgment proof.[1]

16. In particular, she relies on the following dicta of Mann J in Taylor v Van Dutch Marine Holdings Ltd & Ors:[2]

“Thus, in my view, a third party with security over property which is frozen by the freezing order would not need to obtain permission in order to exercise that security because the exercise of disposal rights under that security would not be an act prohibited by the order. If, for example, the third party uses a power of sale in order to dispose of the property, that would not be a disposal by the defendant notwithstanding any technicality which might arise out of the fact, which is common to many securities, that the exercise of a power of sale is technically done as agent for the mortgagor. Nor would it be any form of dissipation because the secured debt already exists and the secured property is already encumbered with it. The enforcement by the mortgagor would not be an infringement of the letter of the order; nor would it be contrary to the spirit of the order which, as I have explained, does not operate so as to give the claimant a prior right in the form of security over the assets. If the freezing order does not destroy, or affect, the rights of a charge or mortgagee (which it does not) there is no reason why it should operate so as to restrain the exercise of the rights of that person. The exercise of those rights would not infringe the order. It follows therefore, in my view, that strictly speaking a chargee or mortgagee, in a normal case, would not need to obtain a release or variation of the freezing order.”

17. In other words, Mann J took the view that a third party with security over property frozen by a freezing order is not required to obtain permission to exercise that security because the exercise of disposal rights would not be an act prohibited by the freezing order. According to his Lordship, the third party needs not seek the permission of the court before enforcing his security rights, and the plaintiff cannot oppose it “in the absence of something like collusion”.[3]

18. Ms Lam also refers me to the contrary view expressed by Colman J in Gangway Ltd v Caledonian Park Investments (Jersey) Ltd & Anor[4], in which his Lordship observed that there may be a “duty” on the third party to apply for a variation before he exercises his contractual right to dispose of properties restrained by a court order. However, this was expressly rejected by Mann J in Taylor, after considering and analyzing Colman J’s judgment in Gangway at length.[5]

19. Despite the dicta of Mann J, Ms Lam submits that this application has been necessitated by: (i) the Plaintiff’s insistence that Prosper Talent has been aiding, abetting or otherwise assisting the Defendant in disposing the IRC Shares in breach of the Injunction; (ii) the Plaintiff’s repeated threats of contempt proceedings; and (iii) the Plaintiff’s refusal to acknowledge Prosper Talent’s rights under the Share Charges and deal with this matter by consent without an application to the court. Hence, it is still necessary for Prosper Talent to make this variation application to clarify the issues.

The position and argument of the Plaintiff

20. Mr Kwan, counsel for the Plaintiff, submits that Prosper Talent should have sought the approval of the court before exercising its security rights and disposing the IRC Shares. As Prosper Talent had not done so, it was guilty of contempt and the court should not therefore entertain its present variation application unless and until Prosper Talent purges its contempt.

21. According to Mr Kwan, most of the authorities, including those of the House of Lords and the English Court of Appeal, prior to Mann J’s first instance decision in Taylor v Van Dutch Marine Holding Ltd[6] support the proposition that a third party, even with a special or legitimate right to do so, cannot act contrary to a Mareva injunction of which he has knowledge unless he has applied to the court for and obtained a variation or permission. Taylor was therefore decided per incuriam and should not be followed in Hong Kong.

22....

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