Lenka Investments Ltd and Another v. Cheung Kong (Holdings) Ltd and Another
Read the full judgment text of CACV 42/1983 on BabelCite. This Court of Appeal judgment was delivered on 12 December 1981.
1. We dismissed this appeal on the 5th May 1983 at the conclusion of the hearing, and now give our reasons. The important issue that arises in these proceedings concerns the jurisdiction of the High Court to restrain, by injunction, the threatened institution of legal proceedings in Hong Kong. This is how the matter arose. On the 12th December 1981 lenka Investments Ltd. (1st Plaintiff), a wholly owned subsidiary of Carrian Investments Ltd. (2nd Plaintiff) entered into an agreement in writing [
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CACV000042/1983
Headnote Practice and procedure - injunction - where there is no evidence that the issue of a writ will be used as an instrument of vexation and oppression the court will not grant an injunction to restrain a party to an arbitration agreement from bringing an action in the Hong Kong courts and the proper remedy of the other party is to apply, at the appropriate time, for the action to be stayed under s.6 of the Arbitration Ordinance. Practice and procedure - injunction - where the court's jurisdiction is invoked to prevent a would-be litigant from abusing its process, it is for the applicant to establish prima facie that the proposed action will fail and be an abuse of the process of the court, and the American Cyanamid principles regarding the balance of convenience are not applicable. Dates of hearing: 3rd, 4th and 5th May, 1983. Date of reasons for judgment: 12th May, 1983.
BETWEEN
___________ Coram: Leonard, V.-P., Cons and Fuad, JJ.A. Date: 12th May, 1983. ________________________ REASONS FOR JUDGMENT ________________________ Fuad, J.A. 1. We dismissed this appeal on the 5th May 1983 at the conclusion of the hearing, and now give our reasons. The important issue that arises in these proceedings concerns the jurisdiction of the High Court to restrain, by injunction, the threatened institution of legal proceedings in Hong Kong. This is how the matter arose. On the 12th December 1981 lenka Investments Ltd. (1st Plaintiff), a wholly owned subsidiary of Carrian Investments Ltd. (2nd Plaintiff) entered into an agreement in writing ["The Agreement"] with Cheung Kong (Holdings) Ltd. (1st Defendant) and Mr. Henry Ng Chun For (2nd Defendant), together with Speedy Trend Investments Ltd., concerning the sale and purchase of all the shares in a private company named Crossport Ltd. Neither Speedy Trend nor Crossport are parties to the present proceedings. The Agreement is long and complicated but essentially it provides for the acquisition by Lenka of Crossport's interest in the re-development of four adjacent lots of land fronting on Chatham Road, Kowloon, through the purchase of the entire shareholding in Crossport, held by Cheung Kong (Holdings) and Mr. Henry Ng. Prior to the Agreement, Crossport who was the registered owner of two of the lots, and Yikay Enterprises Ltd. who owned the other two lots, had entered into a joint venture agreement to redevelop all the lots together and a 17 storey commercial building was in the course of construction upon them. Immediately before the 12th December 1981 Cheung Kong (Holdings) and Mr. Henry Ng were creditors of Crossport; and Speedy Trend come into the picture because they agreed to take over the loans, the amount of which was to be deducted from the "Base Price" of $127m. Speedy Trend is another wholly owned subsidiary of Carrian Investments. 2. As part of the background, it is also necessary to relate that also on the 12th December 1981 a deed, described as a guarantee, was executed between Carrian Investments on the one part, and Cheung Kong (Holdings) and Mr. Henry Ng on the other part. The recitals state that the deed was "supplemental" to the Agreement, and the operative part of the deed (hereafter referred to as "the Guarantee") is in the following terms -
3. The dispute which eventually brought the parties before the court in the present action can be said to have started in November 1982. In view of the nature of the submissions addressed to us, it is necessary to refer to some of the correspondence exchanged between the Solicitors concerned. The Solicitors acting for Cheung Kong (Holdings) and Mr. Henry Ng, wrote to Lenka 3rd November 1982) demanding payment of $1.27m., an instalment which was due under the terms of the Agreement on 12th October 1982. The letter gave notice that if the sum due was not paid within 14 days, the vendors would exercise their contractual rights 'to rescind the sale, forfeit the deposit or deposits paid by you, resell the share capital and loan and reserve whatever r rights against you for damages for breach of contract". On the same day, a letter went to Carrian Investments referring to the Guarantee and telling them what had happened, and adding "In the circumstances, we have been instructed by our clients to give you notice, which we hereby do, that you are required to remedy such breach forthwith, failing which our clients will exercise their rights of rescission and other rights under the contract". On the 12th November the Occupation Permit of the building was sent to Lenka's Solicitors. They replied (15th November) saying that since this was the first time the Permit had been seen, it was impracticable to expect completion to take place on the agreed date, the 17th November. They asked for documents to be sent to them as well as for confirmation on a number of matters they mentioned. They also raised queries on the completion statement they had received. The vendors' Solicitors wrote back (16th November) explaining why they did not think that delay in completion was justified but adding "However ... our clients are prepared, in accommodating your clients to extend the time for completion herein to Monday, the 22nd day of November 1982 but without prejudice to any other rights our clients may have against your clients under the Agreement of the 12th day of February 1981 (sic)". 4. After a considerable further exchange of correspondence the vendors' Solicitors wrote (23rd November) to Lenka Investments drawing attention to the unpaid instalment of $1.27m. earlier demanded and the fact that they had failed to complete by the extended date (the 22nd November). They also pointed out that they had to pay another instalment due under the Agreement, payable on the 12th November. The letter ends "Accordingly we are instructed to give you notice, which we hereby do, that our clients rescind the said Agreement ... and forfeit the amounts already paid to them ... reserving all further rights against you." Lenka's defaults, and the action taken as a result, were explained to Carrian Investments in a letter of the same date (23rd November) which concluded thus: "... we hereby give you notice that our clients reserve all their rights against you as a guarantor under your Guarantee dated the 12th December 1981". 5. There was a flurry of correspondence dated the 23rd and 24th November, some sent by hand and some through the post. A few, at least, of these letters must have crossed each other. All this culminated in two important letters written by Lenka's Solicitors (2nd December) and replied to by the vendors' Solicitors (7th December). Lenka's Solicitors said that the rescission was wrongful for the reasons set out in their letter and went on to say that in the light of the vendors' unreasonable attitude in refusing a further postponement of the date of completion to the 26th November (which had been requested in an earlier letter) and their wrongful rescission, it was clear that they did not intend to fulfil their obligations and therefore "our clients have instructed us to accept your clients repudiation of the Agreement, subject to reserving all their rights [under it] and to request the return of all payments made, together with interest. In any event, in the light of your clients breaches of warranties, undertakings and obligations set out above, our clients are entitled under the Agreement to, and do hereby, rescind the Agreement with immediate effect, similarly reserving all their rights [under] the Agreement and requesting the return of all past payments made, together with interest." 6. In summary the allegations and counter-allegations in the letters of the 2nd and 7th December were as follows -
7. The vendors' Solicitors wrote separate "letters before action" to Lenka Investments and Carrian Investments both dated the 2nd March. The Defendants' claim against Lenka Investments was stated to be for $60,545,931.50 quantified as follows -
The letter to Carrian investments demanded the same sum "by way of compensation under Clause 16.01 of the Agreement" reserving the Defendants' rights "under the guarantee dated the 12th day of December 1981." 8. As part of the narrative, we now refer to an arbitration clause in the Agreement. It is in the following terms -
9. Lenka Investments and Carrian Investments got in first, and on the 9th March this year (as Plaintiffs) obtained an interim injunction from Rhind J. on an ex parte application (on notice), restraining Cheung Kong (Holdings) and Mr. Henry Ng (the Defendants) from instituting legal proceedings "in respect of any matter touching or concerning the ... Agreement ... or the construction thereof or in respect of anything done or omitted thereunder." On the following day the Plaintiffs took out a Writ against the Defendants. The indorsement (as later amended) briefly recited the effect of the Agreement and the Guarantee, and averred that the Defendants had threatened to commence legal proceedings in breach of the arbitration clause in the Agreement. The following relief is claimed -
10. We would here mention that paragraph (c) and (d) were added to the reliefs claimed by the original indorsement, by amendment, on the 21st March 1983 after, we are told, Mr. Litton had completed his submissions to Rhind J. The hearing of this inter partes summons had begun on the 17th March. At the conclusion of that hearing Rhind J., on the 22nd March, declined to continue the injunction until the trial of the action and the Plaintiffs now appeal against that decision. 11. We will now refer to the relevant affidavits which were before Rhind J. A director of Lenka Investments, Mr. Bentley K.C. Ho made an affirmation recounting the background of the matter and setting out the arbitration clause. The reason given for the application for an injunction was this -
12. Mr. Ho's affirmation was supported by the affidavit of Mr. Denis Cross who is a director of Hambros. He said he is part of a team advising Carrian Investments in the formulation of proposals to its lenders. There were more than 40 different lenders to Carrian Investments and its subsidiaries; some of the loans are secured and some unsecured. Their total debts "exceeds $2,500 million. There were also very substantial contingent liabilities on guarantees. He explained what a formidable task it was to formulate, and seek agreement to, proposals involving so many different lenders and creditors, particularly in view of the variety in the amounts of the individual debts and the differing extent to which they were secured. It was inevitable that the working out of such a complex scheme for a group of companies would take time. However, Carrian Investments, with their auditors, were in the ` course of preparing a set of accounts which should be completed at the end of March. The final scheme had to be based upon them. Matters were coming to a crucial stage. Although some lenders had sought to secure their position by putting in formal claims and demands, all of them were at present holding off from instituting proceedings. A writ issued against Carrian Investments claiming HK$60.5 million would inevitably cause the lenders carefully to consider whether they too should bring proceedings. 13. Mr. Cross added that he remained hopeful that a viable scheme might be devised which would be acceptable to all the lenders in the circumstances. But it was crucial that while such a scheme was being formulated and negotiated, the lenders' confidence in the possibility of a viable scheme should not be impaired. The issue of the threatened Writ with the immediate attendant publicity could do "nothing but harm to that essential confidence". 14. The only other affidavit which we need mention is one by Mr. Morris, a partner in the firm of Solicitors acting for the Plaintiffs. He explained how he came to learn from the Defendants' Solicitors that their clients were not agreeable to arbitration. 15. Rhind J. stayed the effect of his order discontinuing the interim injunction pending the institution of this appeal and we conclude an account of the background by mentioning that the Plaintiffs have nominated an arbitrator and served notice on the Defendants (dated the 10th March) requiring them to concur in the appointment, failing which the President of the law Society would be requested to make the appointment in accordance with the terms of clause 17.01 of the Agreement. 16. Mr. Litton, on behalf of Lenka and Carrian, challenged the learned Judge's reliance on the text-book writers in reaching his conclusion on what he termed the first "liminal or threshold point" - that the courts will not restrain breaches of arbitration agreements by injunction. The Judge referred, inter alia, to the following -
17. About these references Mr. Litton says that they do not address the position where the court concludes that the legal proceedings are vexatious and are threatened merely to apply unfair pressure on the opponent. If, as the cases showed, the Court would restrain proceedings abroad in favour of arbitration within the jurisdiction, why not restrain legal proceedings within the jurisdiction, if it was just and convenient to do so? He submitted that the jurisdiction to restrain vexatious proceedings was clear and that no distinction was to be drawn between proceedings within thin the jurisdiction and those abroad. He relied on Carron Iron Co. v. Maclaren (1855) 3 H.L. cases 415 for this proposition. 18. We accept that the court has jurisdiction to restrain a person from instituting proceedings in appropriate cases. The cases show that a person has a right not to be involved in hopeless litigation which would be an abuse of the process of the court. By virtue of s.19 of the Supreme Court Ordinance the High Court may grant an injunction in all cases where it appears just or convenient so to do. This is a very wide jurisdiction but it is well established that injunctions are only granted having regard to settled legal principles. Examples of the exercise of the jurisdiction to prevent the institution of proceedings were cited to us. Where a company is solvent, and a claim by a creditor is bona fide disputed, he will be restrained by injunction from presenting a winding-up petition (Niger Merchants Co. v. Copper (1877), 18 Ch. D. 557; Cercle Restaurant Castiglione Co. v. Lavery (1881), 18 Ch. D. 555). It is clear from the reports that in each case Jessel M.R. accepted that the court had inherent jurisdiction to restrain proceedings or the institution of proceedings intended to extort submission to demands which would irretrievably damage the company where there were no reasonable grounds for commencing or prosecuting the proceedings. Another example is to be found also in the field of company law. In Charles Forte Investments Ltd. v. Amanda [1964] 1 Ch. 240 Willmer L.J., at p.251 referred to Cadiz Waterworks Company v. Barnett (1874) L.R.19 Eq.132 (a case relied upon also by Jessel M.R. in the Cercle Restaurant case) and approved the statement by Malins V.-C. that "it is the object of the court to restrain the assertion of doubtful rights in a manner productive of irreparable damage." Willmer L.J. held on the facts that it would be a proper case for the exercise of the inherent jurisdiction of the court if the plaintiffs could otherwise make good their claim that the threatened petition was bound to fail and amounted to an abuse of the process of the court. He concluded his judgment as follows, at p.259 -
Danckwerts L.J., at p.259, agreed, on the basis that "the petition, if allowed to proceed, must fail and the presentation of the petition would be an abuse of the process of the court and should be prevented under the inherent jurisdiction which the court possesses." 19. We are bound to say that we find nothing in the affidavits filed in support of the Plaintiffs' application that wold warrant the assertion that on the material before the court any properly formulated action instituted by the vendors against Lenka or Carrian would be doomed to failure on its Merits. Mr. Litton has conceded, as we think he was bound to do, that given proper pleadings, he would not have any hope of having the vendors' claim against lenka struck out under 0.18 r.19 or under the residual inherent jurisdiction of the court. Mr. Litton did not Make the same concession regarding any possible claim against Carrian. Under the Guarantee, Carrian undertook to see to it that Lenka performed its side of the' Agreement. It is impossible to say, until the matter is tried, what might be the extent of Carrian's liability, if the vendors' potential claim against Lenka succeeds. They May be held liable to pay one or More of the instalments. It is conceivable that they might even be held liable in damages to the same extent as lenka; we do not Know. However, we feel it would be wholly unjustified to rule now that no properly prosecuted action against Carrian could possibly succeed. Mr. Litton has submitted that upon its true construction, against the Matrix of the facts and circumstances, by the Guarantee the vendors had undertaken not to institute legal proceedings claiming damages under it before any breach of the Agreement by Lenka had been either admitted by Lenka or so found by an arbitrator in pursuance of the arbitration clause. This contention is, as we have seen, reflected in paras. (c) and (d) of the relief now claimed in the indorsement of the writ. The Judge felt that this was "an absolutely hopeless contention" amounting to "no more than wishful thinking on Carrian's part." It will be for the Judge in any future trial to reach a final conclusion on this question, but we have no hesitation in expressing our present view that the chances of convincing a court dealing with the issue that an admission by Lenka or an award by an arbitrator was a condition precedent to any right of action under the Guarantee appears very remote indeed. 20. We therefore conclude, leaving aside the arbitration clause for the mom moment, that the threatened action(s) against Lenka and Carrian have not been shown, prima facie, to be unmaintainable. 21. We now turn to a consideration of the effect of the arbitration clause. It is well settled that an arbitration agreement is neither a bar nor a defence to proceedings instituted in respect of a dispute agreed to be referred. We respectfully consider we can do no better than to set out Fletcher Moulton L. J.'s account of the history of the matter in Doleman & Sons v. Ossett Corporation [1912] 3 K.B. 257, at p.267 -
22. Another, and somewhat similar historical account is to be found in the judgment of Cozens Hardy M.R. in Pena Copper Mines Ltd. v. Rio Tinto Company Ltd. (1911) 105 L.T. 846 at pp. 851-852 In Hong Kong, we have, of course, in s.6 of the Arbitration Ordinance the same machinery to remedy what Fletcher Moulton L.J. called "this treatment of arbitration clauses by the Courts of law." Lenka has chosen not to wait to invoke its procedural rights under s.6 on the special grounds it advances. In a footnote to p.410, the learned authors of MUSTILL & BOYD say, in this context, "we know of no instance where an injunction has been sought". This, of course, is no reason why the court should not intervene if it is right to do so. But we would say that we cannot see how it could ever be an abuse of the process of the court, entitling the court to step in, to seek to institute an action within the jurisdiction where an arbitration clause covers the dispute unless there are other factors. The cause of action remains and is to be tried in the ordinary courts of law unless and until the provisions of the Arbitration Ordinance are prayed in aid. Although the discretion of the court to grant injunctions is very wide, we agree with Mr. Swaine for the vendors that it would not be a proper exercise of that discretion to grant an injunction to prevent the institution of contemplated proceedings simply because of the existence of an arbitration clause. Where this is the only ground upon which an injunction is gought, we think it would be neither just nor convenient to grant it. It is not just, because the intended plaintiff would be denied access to the courts which is his constitutional right, and moreover deprived of such benefits as are his due under s.6 of the Arbitration Ordinance. It is not convenient, because the Ordinance provides entirely appropriate machinery and on an application under that section, the court will have a properly formulated claim before it upon which it can exercise its statutory discretion whether or not to grant a stay. We have already sufficiently indicated why we consider that no stay that might be granted under s.6 could possibly affect the vendors' right to proceed against Carrian Investments under the Guarantee. Our preliminary view must be that Mr. Swaine is fully justified in suggesting that the court might well, in the event, refuse to grant a stay in favour of lenka in the exercise of its discretion in view of the likelihood of a duplication of proceedings and the possibility of conflicting decisions, on the basis of many facts common to the proceedings in court and the reference to arbitration. Taunton-Collins v. Cromie and Others [1964] l W.L.R. 633 is an example of the application of this principle. The opportunity of advancing such a submission was one specific benefit denied to the vendors by the procedure adopted in the instant case. We would here mention that where proceedings in a foreign court are involved, we see the position as very different because the municipal court cannot stay the proceedings and the only way indirectly to enforce an arbitration agreement is to restrain a party, by way of an injunction, from proceeding further on the foreign claim. 23. We now return to the affidavits of Mr. Bentley K.C. Ho and Mr. Cross to see if there are any factors which can be prayed in aid apart from the mere presence of the arbitration clause. Mr. Litton submits that there are two: that irreparable harm would befall the Carrian Group if the vendors carried out their threat to issue a Writ; and that the threat to do so was motivated by only one objective - to put pressure upon Carrian to settle the matter by the menace of bad publicity when they were having delicate negotiations with their financiers. With all respect to these submissions, we entertain no doubt that the affidavits, read together, fall far short of establishing the first and provide no evidence at all in support of the second. 24. We have so far not mentioned the American Cyanamid principles. In our opinion considerations of the balance of convenience do not arise in a case of this kind. On the authority of Bryanston Finance v. De Vries (No. 2) [1976] 2 W.L.R. 41 in view of the nature of the application made by Lenka and Carrian, and its effect if successful, we hold that it was incumbent on them to establish a prima facie case that the vendors' proposed action would fail and be an abuse of the process of the court. We would respectfully adopt the reasoning contained in the following passage from the judgment of Stephenson L.J. at p.54 -
25. In the light of our earlier conclusions, we have no doubt any reliance on the American Cyanamid case would be unsustainable. 26. In dismissing the appeal we were satisfied that the interlocutory application by Lenka and Carrian was wholly misconceived and that Rhind J. was perfectly right in not acceding to it.
Representation: Henry Litton Q.C., with Andrew Li (Deacons) for the Appellants. John Swaine Q.C., with Gladys Li (Shea & Co.) for the Respondents. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||