Tan Man Kou and Another v. Chime Corporation Ltd and Others
Read the full judgment text of HCMP 4146/2001 on BabelCite. This High Court CFI judgment was delivered on 11 May 2004.
1. This is a summons issued by Mrs Nina Wang, the 2nd respondent herein, under the inherent jurisdiction of the court, for an order declaring the security arrangements proposed as annexed in a schedule to the summons constitute satisfactory replacement security under the terms of the Security Agreement dated 24 December 2002 ("the Security Agreement") made between the Joint Administrators of the estate of Wang Teh Huei, the petitioners herein, Mrs Wang and Summerwind Limited ("Summerwind").
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HCMP004146F/2001 HCMP 4146/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO. 4146 OF 2001 ____________
____________ Coram: Hon Kwan J in Chambers Date of Hearing: 11 May 2004 Date of Decision: 11 May 2004 _____________ D E C I S I O N _____________ 1.This is a summons issued by Mrs Nina Wang, the 2nd respondent herein, under the inherent jurisdiction of the court, for an order declaring the security arrangements proposed as annexed in a schedule to the summons constitute satisfactory replacement security under the terms of the Security Agreement dated 24 December 2002 ("the Security Agreement") made between the Joint Administrators of the estate of Wang Teh Huei, the petitioners herein, Mrs Wang and Summerwind Limited ("Summerwind"). 2.The background of the summons may be stated as follows. 3.By the amended order of Deputy Judge Gill dated 14 December 2001 ("the Amended Order"), Mrs Wang was ordered to procure an amount equivalent to the dividends received by her in respect of 15 million B shares in Chime Corporation Limited, being HK$1.4925 billion, be paid into an escrow account opened by and in the name of the Joint Administrators within the time specified or otherwise be secured to the satisfaction of the court. By an order I made dated 15 November 2002, it was declared that the proposed security in respect of the required sum of HK$1.4925 billion was satisfactory and complied with the Amended Order. One of the methods of providing security was for Mrs Wang to create a legal charge in favour of the Joint Administrators over 34,705,983 ordinary shares in Chelsfield plc of 20 pence each ("the Chelsfield shares") owned by Summerwind, a company associated with Mrs Wang, pursuant to the Heads of Agreement agreed by the Joint Administrators and Mrs Wang on 14 November 2002 ("the Heads of Agreement"). The charge thus created was to secure HK$592.5 million. 4.Mrs Wang duly entered into the Security Agreement with the Joint Administrators and Summerwind for the above purpose. Pursuant thereto, the Chelsfield shares were delivered to HSBC as the custodian of the Joint Administrators. 5.On 26 January 2004, the shares in Chelsfield plc, a listed company in the United Kingdom, became the subject of a takeover by Duelguide plc ("Duelguide"). The offer of Duelguide was accepted by Summerwind with the consent of the Joint Administrators, given under clause 3.3 of the Security Agreement. The proceeds of sale, which will be paid by Duelguide in pounds sterling, will be received on 12 May 2004 by HSBC as custodian. 6.The Joint Administrators have insisted that the proceeds of sale should be converted into HK dollars "to avoid the need to constantly monitor the foreign exchange" and "to top up the security when the ￡ falls". It was further contended that the Security Agreement does not envisage foreign currency deposits as replacement security, only when they are agreed to by the Joint Administrators. 7.Mrs Wang does not wish to convert the proceeds of sale into HK dollars as retaining funds in HK dollars is not commercially attractive. The HK dollar deposit rates are 0.001% whereas rates for sterling deposits exceed 4%. At the current deposit rates, if Mrs Wang is obliged to provide security in cash deposit in HK dollars instead of pounds sterling, she would suffer a loss of about HK$24 million a year. She has offered to the Joint Administrators an arrangement similar to that accepted by the court in an order made on 31 October 2003, namely that pounds sterling equivalent to 105% of HK$592.5 million will be held as security, with a mechanism for the amount to be topped up or reduced to deal with currency fluctuations. 8.The Joint Administrators declined this offer, they would agree to replace the security in the form of cash deposit in pounds sterling only if a buffer of 20%, instead of 5%, extra cash in pounds sterling is provided as security. Hence this application was made. 9.The first matter I need to resolve is the question of jurisdiction. It was contended by Mr Jamison for the Joint Administrators that the court has no jurisdiction to entertain this application. The court cannot vary the Security Agreement, as it embodied private rights agreed upon after a negotiated compromise between the Joint Administrators and Mrs Wang, the court is not therefore concerned with the rights under a court order. The court can interpret the Security Agreement if there is a dispute as to interpretation, but this should be done in separate proceedings commenced for this purpose and should not be determined summarily. Furthermore, in clause 3.1, the Security Agreement has provided for one situation where a particular matter is subject to review by the court. There is no provision for review by the court in any other situation in any other provision of the Security Agreement. 10.I am unable to accept the above submissions. One must not lose sight of the fact that the Security Agreement flowed from the Amended Order, under which Mrs Wang was required to provide security in the manner as provided "or otherwise be secured to the satisfaction of the Court". Under paragraph 3 of the Heads of Agreement, which was declared by the court in the order dated 15 November 2002 to be a form of satisfactory security in compliance with the Amended Order, it is provided inter alia as follows:
11.I do not think the effect of the Security Agreement, which was entered into pursuant to the Heads of Agreement, is to supplant the court orders, nor should it depart from the Heads of Agreement, declared as satisfactory security by the Court, in any material way. I reject Mr Jamison's submission that the court would have no inherent jurisdiction to entertain this application. 12.I turn to consider whether the Security Agreement contains any requirement that the proceeds of sale of the Chelsfield shares must be converted into Hong Kong currency. The governing law of the Security Agreement is English law, there is no evidence that English law is different from Hong Kong law in any material respect for this purpose. 13.Under clause 3.3, it is provided inter alia that:
14."Required Value" is defined in clause 1.1 as "HK$592,500,000 or such other amount as may be agreed in writing from time to time between the Joint Administrators and the Security Parties and notified to the Custodian." 15.Clause 3.4 provides as follows:
16.It is common ground that as there is no unsold portion of the Chelsfield shares, the reference in clause 3.4 to the "Net Realisable Value of any unsold portion of the Charged Collateral" in this instance is zero. Hence, the "Proceeds Collateralised Balance" in the present situation is equal to the "Required Value". 17.Mr Poon, SC submitted on behalf of Mrs Wang that by the terms of clause 3.4, the Joint Administrators are entitled to retain the proceeds of sale, which are in pounds sterling, as is equal to the Required Value of HK$592.5 million and no more and the Joint Administrators are obliged to release to Mrs Wang or Summerwind the balance of the proceeds in excess of the Required Value. 18.It is not apparently disputed by the Joint Administrators that they are entitled to retain as replacement security only an amount of proceeds equal to the Required Value in this instance. But is there any requirement in the Security Agreement that the cash retained as replacement security must be held in Hong Kong dollars? 19.The Joint Administrators pointed to the definition of "Net Realisable Value" in clause 1.1. This term is defined differently depending on whether the Charged Collateral is (i) the Charged Shares; (ii) cash or a bank guarantee; or (iii) any other form of security. In respect of cash, the definition of "Net Realisable Value" reads:
20.In relation to "any other part of the Charged Collateral", the Net Realisable Value means:
21.The Joint Administrators submitted that no agreement is reached as to such percentage of its value of the Net Realisable Value in relation to any other form of security, and no other amount has been agreed for the Required Value. Hence, the replacement security in cash deposits must be held in Hong Kong dollars. 22.In my view, the provision contained in the definition of Net Realisable Value in attributing 100% value to cash charged "denominated in the same currency as the Proceedings Obligations", which is in Hong Kong dollars, is merely a mechanism for valuing a different type of the Charged Collateral for various purposes in clauses 3.1, 3.2, 3.3 and 3.4, as it is contemplated in the Security Agreement that the nature of the security may change from time to time. 23.Under clause 2.2, the obligation of the chargor is to charge in favour of the Joint Administrators, all of the Charged Collateral. "Charged Collateral" is defined in clause 1.1 to mean, inter alia,
It is further provided in clause 2.2 that the amount secured shall not exceed the aggregate of the Required Value and the amount of the Supplemental Obligations as defined. 24.The Charged Shares have a par value in pounds sterling and the proceeds of sale will be in pounds sterling. The provisions in the Security Agreement do not impose a requirement that the proceeds of sale held as replacement security in accordance with clauses 3.4 and 2.2 must be denominated in Hong Kong currency. 25.I hold that the proposal of Mrs Wang does not involve a variation of the rights of the parties under the terms of the Security Agreement. 26.There is no suggestion by the Joint Administrators that similar mechanism to cater for currency fluctuation provided in the order made in October 2003 has caused any particular difficulty. I understand from Mrs Wang that the mechanism has worked well and that the basket of currencies held in a special interest bearing account pursuant to that order has earned significant interest. I see no reason why the buffer in this instance should be raised from 5% to 20%. 27.For the above reasons, I make an order in terms of the draft order submitted to me as amended. 28.As for the costs of this application, normally costs should follow the event, but the situation here is governed by clause 10 of the Security Agreement, which provides that the Security Parties shall indemnify the Joint Administrators their costs, charges and expenses incurred in connection with the execution of, exercise of rights under, or otherwise in relation to the Security Agreement. I accept Mr Poon's point that this provision does not give the Joint Administrators the right to be indemnified for their costs in taking any facetious point in relation to the exercise of their rights under the Security Agreement, but I do not think that was the position here. The costs of the Joint Administrators incurred up to the release of the proceeds of sale as provided in paragraph 1 of the draft order should include the Joint Administrators' costs of this summons and I so order.
Representation: Mr Jamison, of Clifford Chance, for the Petitioners Mr Winston Poon, SC instructed by Baker & McKenzie, for the 2nd Respondent |
Cases cited in this judgment
Further hearings and rulings under HCMP 4146/2001