LEE SHUN COMPUTER EMBROIDERY FTY (a firm) v. GREAT UNION GARMENT LTD

HCA 2346/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2346 OF 2005

____________

____________

______________

D E C I S I O N

______________

1.  The defendant is applying for stay of execution of the judgment pending the disposal of its appeal.

Background

2.  The defendant was adjudged by me after trial to pay the plaintiff the sum of HK$1,789,324.64 with interest.  It has appealed against the judgment.  The appeal was fixed to be heard on 3 June 2007.

3.  The judgment has not been satisfied.  On 27 January 2007, the plaintiff took out a petition to wind up the defendant.

Relevant principles

4.  The relevant principles relating to stay of execution pending appeal are as follows:

(1)     An appeal does not operate as a stay on the order appealed against except as the court below or the Court of Appeal otherwise directs (see O.59, r.13(1), RHC).

(2)     The relief of stay is entirely in the discretion of the court.

(3)     The successful litigant is prima facie entitled to the fruits of the litigation.

(4)     The most important consideration is whether there are strong grounds of appeal, and the hurdle is higher than that of chances of success for consideration whether leave to appeal should be granted.

(5)     It may be appropriate for execution of the judgment to be stayed if the injustice the defendant would suffer was tantamount to rendering the appeal nugatory or would involve the defendant in loss for which he could not be compensated (see Whale View Investment Ltd v. Kensland Realty Ltd & ors [2001] 3 HKC 15 per Keith JA).

(6)     Where the appeal is an award of damages, a stay will normally be granted only where the defendant satisfies the court that if the damages are paid, there will be no reasonable prospect of his recovering them in the event of the appeal succeeding (see Atkins v. Great Western Ry Co [1886] 2 TLR 400);

(7)     Nowadays the court may be prepared (provided that the appeal has sufficient merit) to grant a stay, even where the test is not satisfied, if enforcement of the money judgment under appeal would result in the defendant’s house being sold or his business being closed down, but if such a stay is granted the court should impose terms which (so far as possible) ensure that the respondent is paid without delay, if the appeal fails, and the defendant is prevented from depleting his assets in the meantime (see The Hong Kong Civil Practice 2007 para. 59/13/1 citing Linotype-Hell Finance Ltd v. Baker [1992] 4 All ER 887 per Staughton LJ).

Defendant’s grounds

5.  Mr. Lam Siu Man, director of the defendant affirmed that:

(1)     The defendant would seek to produce fresh evidence at the appeal on the ground that:

(a)    the defendant was not aware of the need to produce documents to prove the airfreight charges;

(b)   the defendant was not aware that the evidence of its witness, Miss Kwan, an experienced accounting officer, would not be accepted by the court;

(c)   the defendant never thought that the plaintiff would deny that they agreed not to charge for surplus delivery;

(d)   the defendant did not call third parties to prove the defence because the third parties found the giving of evidence in court very troublesome.

(2)     The defendant would be deprived of working capital in satisfying the judgment.

(3)     The winding up of the defendant would destroy reputation and goodwill that took years to establish and the damage suffered would render an successful appeal nugatory.

(4)     There is no guarantee that the defendant could recover the money paid in the event of an successful appeal, or the time and expense would be disproportionate.

(5)     The defendant is willing to pay into court the judgment sum of HK$l,789,341.64 pending the result of the appeal.

6.  Miss Lau, for the defendant, further submitted that in order to satisfy the test for adducing new evidence, the defendant would say that the evidence was not available at the trial, in that the third party who would testify to complaints of delay made to the defendant was in China and was not available in Hong Kong.

7.  The evidence as to payment of freight which was not make available at trial would now be make available.

8.  Miss Lau conceded that as yet, there is no proof of evidence prepared as to what evidence the defendant will ask the Court of Appeal to accept.

9.  Miss Lau also submitted that the prejudice to the plaintiff was a mere three months’ delay, and any winding-up petition would take more than three months to complete.  Even in the event of winding-up, the funds available would be shared amongst creditors generally. 

10.  In any event, the defendant is to resist the winding-up petition on the ground that it is not insolvent.  So with the payment into Court in real prejudice to the plaintiff is delay for three months.

Plaintiff’s grounds

11.  In opposition to the stay, Mr. Chung for the plaintiff submitted that:

(1)     There is no evidence that the plaintiff is financially unsound and it is only a bare assertion that there is no prospect of recovering the judgment sum paid in the event of a successful appeal.

(2)     The costs of recovery of the judgment sum is just a normal incidence of litigation.

(3)     The deprivation of working capital applies to both the plaintiff and the defendant depending on whether the payment of the judgment sum is stayed.

(4)     The defendant has disclosed no merits on the appeal other than outright admission of poor preparation for trial.

(5)     The ability to make payment into court demonstrates the ability to satisfy the judgment sum, and hence, the ability to avoid the winding-up petition.

Consideration

12.  The most important factor is merits of the appeal.  The issues in the case were mainly factual:what was the agreed terms as to the delivery and whether there was any breach, and the proof of the loss to the defendant.  The charging of the surplus delivery by the plaintiff was a minor point involving insubstantial amount.  I rejected the evidence of the defence witness.  There was a singular lack of any documentation and/or contemporaneous correspondence of any complaint of late delivery by the defendant and plaintiff, and the loss to the defendant in extra airfreight costs lied only in estimates by the accountant without any proof of payment.  The grounds of appeal are effectively challenge of finding of facts.  This Miss Lau also agreed.  It was submitted that the defendant would seek to adduce fresh evidence, but without demonstration of the sort of evidence that would avail its case at the appeal, it would not really assist me much by merely mentioning such course.  In any event, it is doubtful whether such evidence would satisfy the test that they were not available at the trial.  It was a matter of tactics as to why they were produced at the trial.  Hence, I am not satisfied that they are strong grounds of appeal. 

13.  The devastation of winding-up is a red herring, as it is within the means of the defendant to make payment and avoid any winding-up.  The only real concerns are the prospect of recovery in the event of a successful appeal, and also whether the plaintiff should be made to wait for three more months.  Yet again, that has to be seen in the light of the prospects of the appeal. 

14.  In the circumstances, I am not satisfied that they are strong grounds of appeal.  Hence, I refuse the application for stay of execution of the judgment.

15.  I order that the defendant do pay the costs the application to the plaintiff, to be taxed if not agreed.