BOND STAR DEVELOPMENT LTD v. CAPITAL WELL LTD

LDCS 2000 OF 2001

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LAND COMPULSORY SALE APPLICATION NO. 2000 OF 2001

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D E C I S I O N

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1. The Applicant Bond Star Development Limited applied for an order under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 ("The Ordinance") in relation to Nos. 24, 26, 28, 30 and 32 Ming Yuen Western Street. Nos. 28 and 30 were two buildings connected by a common staircase. Nos. 24, 26 and 32 were buildings on the sides of the connected buildings.

2. The Respondent Capital Well Limited had acquired Flat A, 3rd Floor of 28 Ming Yuen Western Street, but the Applicant owned the rest of the interests of nos. 24 to 32. The application was heard before the Tribunal which made an order in favour of the Applicant on 5th December, 2002 together with costs of the application. The Tribunal also in paragraph 3 of its order deferred the matters of reserve price, conditions for sale, appointment of trustees, costs and any other ancillary and consequential matters to be dealt with on a date to be fixed by the Assistant Registrar with consultation of counsel's diaries.

3. The Respondent appealed against the Tribunal's decision. The Court of Appeal on 19th September, 2003 held that Bond Star's Application should not have been made in respect of those lots of which it was the full owner. However, the Court of Appeal also took the view that there would be no prejudice if the application before the Tribunal were treated as simply relating to No. 28 Ming Yuen Western Street and the issues decided by the Tribunal relating to that lot had not been successfully challenged. The Court of Appeal also remitted the matters reserved in paragraph 3 of the Tribunal's order but only in relation to No. 28 to the Tribunal. The question of whether the Applicant was entitled to make an application on the basis that No. 28 was connected to an adjacent building (No. 30) by a staircase for common use was also remitted to the Tribunal. This latter point had not been argued before the Tribunal.

4. The Court of Appeal further made an order nisi that half of the costs of the appeal be to the Applicant, but the Court did not make any costs order in relation to the costs of the application before the Tribunal on the mistaken understanding that the Tribunal had not made any costs order yet.

5. On 3rd October, 2003, the Respondent applied by summons to the Court of Appeal for variation of the costs order nisi and to set aside the costs order of the Tribunal. On 15th October, 2003, the Respondent further applied by motion to the Court of Appeal for leave to appeal to the Court of Final Appeal. Both applications were scheduled to be heard on 6th April, 2004. It was however adjourned to 16th December, 2004 not because of the fault of the parties but because of unavailability of the Court.

6. The Applicant on the other hand had on 20th November, 2003 obtained an allocatur of the costs as ordered by the Tribunal at $1,304,146.60. It has also commenced winding up proceedings against the Respondent in the BVI where the Respondent was incorporated there.

7. The Respondent has by summons applied to the Tribunal for stay of execution of its costs order pending the Court of Appeal's ruling on costs to be made on 16th December, 2004. In order to secure payment of such costs, the Respondent has undertaken not to dispose of its interest in Flat A, 3rd Floor of 28 Ming Yuen Western Street.

8. The application is supposedly made under Order 45 rule 11 of the Rules of the High Court. Mr. Yue for the Applicant says that the application for stay should be made under Order 57 rule 13. Order 45 rule 11 provides: -

"11.

Without prejudice to Order 47, rule 1, a party against whom a judgment has been given or an order made may apply to the Court for a stay of execution of the judgment or order or other relief on the ground of matters which have occurred since the date of the judgment or order, and the Court may by order grant such relief, and on such terms, as it thinks just."

9. On the meaning of "matters which have occurred since the date of the judgment or order", Hunter, J. said in Tam Ho Man v. Wong Kwok Tai HCA No. A4736 (unreported) that these words refer to matters which went to the validity of the judgment and which, if established before the Court, might justify the court in saying that this was a judgment which on the material now before it, it would not allow to be executed. In Re Foo Wai Yu [1946-1972] HKC 565, it was held that it was just and equitable to stay execution, as the Applicant had failed to disclose the defendant facts which would have enabled the defendant to establish a counterclaim. The stay was imposed pending the trial of the counterclaim.

10. It is clear that I cannot deal with this application for stay under Order 45 rule 11 as I would have to hold that the order of costs as made by the Tribunal is invalid and should not be allowed to be executed. I would be usurping the functions of the Court of Appeal if I should do so. The application should be under Order 59 rule 13 for stay of execution pending appeal.

11. In order to succeed, the Respondent has to show special circumstances justifying the grant of stay. The decision of the Court of Appeal is not insignificant to the Respondent. Before the appeal, the auction sale was for one lot that included all the buildings that used to stand on Nos. 24 to 32. After the appeal, the auction sale would be for the lot on which No. 28 or Nos. 28 and 32 used to stand. It is a much smaller lot and the bid would likewise be smaller. In paragraph 17 of the judgment of the Court of Appeal, Rogers, VP said: -

"17.

No doubt there are practical difficulties which may face a developer, for example, in a situation where the Applicant has put together a number of lots and wishes to redevelop them together. If such an Applicant owns a number of adjacent lots that are intended to be developed together but is forced to make an application in respect of one lot alone, it may well arise that if that single lot were put up for auction an unrealistic price might be bid for that lot. The person bidding could in effect force the Applicant to pay a premium because, unless the Applicant were prepared to pay an unrealistic price for the particular lot, he might be deprived of that lot by reason of being out bid at the auction and thus would not be able to pursue his original development. Whilst that is true, it is also relevant to take into account the fact that the majority owner might in such circumstances be forced to bid up to the full redevelopment value, thus benefiting the minority owner."

12. Thus as a result of the appeal, it would be a lot easier for the Respondent to bid in the auction as it would cover a smaller piece of land. Mr. Chain says that this point had been argued by the Respondent vigorously at the trial before the Tribunal. Now that the Respondent has succeeded in it in the Court of Appeal, there is thus very good chance that the costs order of the Tribunal would be varied by the Court of Appeal. He thus says that this is one of the special circumstances in this application.

13. Furthermore, the buildings on Nos. 24 to 32 have all been pulled down by the Applicant and the Respondent's flat ceased to exist physically. The Respondent's flat is now only an interest recognized by law and capable of being registered at the Land Registry. Without physical existence, it is difficult to use it as a security for advancement of money. If the Tribunal's costs order is not stayed, the Respondent would be wound up and/or the flat in question, which is the only asset of the Respondent, would be acquired by the Applicant in the course of execution. In that event, the Applicant will thus acquire an undue advantage in that it would not have to go through the auction in order to acquire this flat. The Respondent on the other hand would suffer an undue prejudice as it would lose the chance to obtain the redevelopment value referred to in paragraph 17 of the judgment of the Court of Appeal.

14. Mr. Yue firstly says that the Respondent is trying to use this application for stay to delay payment. He also does not concede that there is a good chance that the costs order of the Tribunal would be varied by the Court of Appeal, but accept that the Respondent at the most would only have reasonable arguments before the Court of Appeal for reduction of the amount of costs payable under the Tribunal's costs order. He does not think that there would be chance for the whole costs order to be set aside or a new order made requiring the Applicant to pay costs to the Respondent.

15. On the finance side, he says that there is no evidence that the Respondent's asset is only the flat in question and has nothing else. He also argues that if the Respondent or those behind it is in a position to bid at the auction, there is no reason why they should refrain from paying the taxed costs to the Applicant. He also refers to the fact that the Applicant is entitled to have the taxed costs in its pocket and an order staying execution of the costs order would prejudice the Applicant.

16. Mr. Chain in answer says that the delay was not the Respondent's making. He further says that even if the Respondent will be bidding at the auction, it does not mean that it currently has the money to pay the taxed costs. It can team up with other entities or investors or financial backers to bid at the auction. I accept that even if the Respondent does not have the cash to pay the costs ordered by the Tribunal, that does not mean that it cannot team up with other partners to bid at the auction to take place in future.

17. In order to answer Mr. Yue's point that there is no evidence on the finance situation of the Respondent, Mr. Lau Piu of the Respondent's solicitors made a third affirmation and filed it in this afternoon saying that the Respondent has no other asset except the flat in question and is not in any business. The Respondent is only a vehicle for holding the flat as an investment. For that reason, Mr. Lau also said that the Respondent does not even have a bank account. All monies spent on the acquisition of the flat and in the litigation were loans from its directors and its creditors are its directors and the Applicant. The Respondent has also given an undertaking that it will within 14 days file an affirmation by Mr. Cai Shi, the person in control of the Respondent, to verify the matters deposed to by Mr. Lau in his 3rd affirmation. In the light of Mr. Lau's 3rd affirmation, Mr. Yue does not think he can comment further on the Respondent's financial position. There is also no dispute that the Respondent is a company incorporated in the BVI and it has not registered in Hong Kong under Part XI of the Companies Ordinance.

18. Since the application to vary the costs order nisi and the appeal to vary the Tribunal's costs order will be heard before the Court of Appeal on 16th December, 2004, the stay as sought by the Respondent is for 3 1/2 months. If the Applicant is allowed to carry on with the winding up of the Respondent or the execution of the allocatur for taxed costs, it is likely that the Respondent's flat will have to be sold otherwise than by the public auction as ordered by the Tribunal. In that event, the Applicant will obtain an undue advantage to the prejudice of the Respondent. This is indeed a special circumstance and, because of this, I am prepared to order a stay of execution of the costs order pending the determination of the Court of Appeal on the Respondent's summons 3rd October, 2003. I am not prepared to make any decision based on the strength or otherwise of the Respondent's chance of success in the Court of Appeal on the Tribunal's costs order as the costs order nisi on the main appeal is still against the Respondent.

19. However, I am concerned about the Applicant's position from now on if I should order the stay as sought. There is the question of how to protect the priority of the Applicant as the Respondent may incur other indebtedness in the meantime. To answer my concern, Mr. Chain on behalf of the Respondent gives an undertaking that the Respondent will defer all its future legal costs to these taxed costs save and except the legal costs to be incurred for the further appearance in the Tribunal pursuant to the Tribunal's own order and the Court of Appeal's order. This undertaking can indeed go someway to address my concern. There is nevertheless the question of third parties though there is no evidence of any debt due to any third party at present.

20. In order to preserve the Applicant's priority in obtaining payment of the taxed costs or any reduced amount of it, I therefore grant the Applicant a charging order absolute over the Respondent's Flat A, 3rd Floor of 28 Ming Yuen Western Street in the usual terms with interest at the judgment rate. If the parties should have any argument over such terms, they are at liberty to come back to me for clarification. I also order that execution of the Tribunal's costs order made on 18th January, 2003 be stayed pending the determination of the Court of Appeal on the Respondent's summons 3rd October, 2003 but that the stay shall only operate after a lapse of seven days from today or upon the registration of the charging order absolute at the Land Registry whichever is the earlier. I further order that the costs of this application to abide by the order of the Court of Appeal under Civil Appeal No. 458 of 2002 except that the costs of the hearing today be to the Respondent in any event. Just out of abundance of caution, I also say that there should be certificate for counsel.