PACIFIC ELECTRIC WIRE & CABLE CO LTD v. TEXAN MANAGEMENT LTD AND OTHERS

CACV 210/2008, CACV 211/2008 AND CACV 212/2008

CACV 210/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 210 OF 2008

(ON APPEAL FROM HCA NO. 2203 OF 2004)

----------------------

----------------------

(Head together)

 

-------------------------------------

REASONS FOR DECISION

-----------------------------------

 

1.  These were applications by the 1^st, 3^rd, 4^th and 7^th defendants in CACV 210 of 2008, of the 1^st, 2^nd, 3^rd and 8^th defendants in CACV 211 of 2008 and the 1^st, 2^nd, 3^rd and 17^th defendants in CACV 212 of 2008 for orders that the various orders made following the judgment of Saunders J of 18 January 2008 (reissued on 14 February 2008) be stayed pending appeal.  At the hearing on 17 September I refused the applications with the reasons to be given in writing.

2.  Previously, there were similar applications made by the 18^th and 19^th defendants which were also dismissed.  The events leading up to this action are somewhat unusual.  It is alleged that the plaintiff’s assets had been usurped by three of its former directors, one of whom, at least, is the subject of prosecution in Taiwan.  The plaintiff is a substantial company.  The evidence shows that it has some 300,000 shareholders.  The gravamen of this action is that its assets were taken away, unbeknownst to the plaintiff, and have ended up in a large number of companies in Hong Kong which own properties and shares which are of substantial value; approximately, according to some estimates, admittedly before the present financial turmoil, of HK$2 billion.

3.  There was an application before Saunders J, under Order 14, and that was heard over an extended period last year.  Judgment was given on 18 January of this year against all the defendants in respect of whom the application was made.  There were some typographical corrections made on 4 February.  Following that, there was an application for the appointment of receivers of the subsidiaries of two companies and that was heard ex parte on 18 January, with a return date on 25 January.  In June of this year, the judge heard an application for stay pending the appeal and that he refused on 4 July.  The final order on this matter was drawn up on 30 July and since then applications for stay pending appeal have been lodged by a number of the defendants.

4.  Although the defendants who applied in the present applications were represented in two separate groups the submissions were made in conjunction and were not duplicated.  Mr Westbrook SC, who appeared on behalf of the first group of defendants relied upon the principles which were usefully summarised by Ma J, as he then was, in Star Play Development Ltd v Bess Fashion Management Co. Ltd., HCA 4726 of 2001.  Whilst acknowledging that a stay would not be ordered except for good reason the first submission was that there were strong grounds for appeal.

5.  The first ground which was strongly argued was that the Order 14 principles had been breached.  It was said that there were 11 full days of court hearing, that the plaintiff’s evidence was massive and that altogether the pleadings, court orders, and affirmations and other relevant documents occupied more than six box files.  It was said, in short that the judge had wrongly allowed the proceedings to develop into a mini-, or even larger, trial.

6.  Mr Neoh SC, who appeared on behalf of the plaintiff, pointed out that although voluminous evidence was filed by the plaintiff, that had to be looked at in the context of what had happened.  Following the filing of the statement of claim the defences that were filed consisted mainly of denials and non-admissions.  There was, in effect, no defence.  It was in those circumstances that the plaintiff considered it right to apply for summary judgment.  In doing so it put before the court all the documents referred to in the statement of claim.  In the circumstances of this case it was the fact that the defendants had not put forward any answer to the allegations made in respect of the flow of funds and the use to which the defendants had put the plaintiff’s monies and the monies borrowed on the strength of the plaintiff’s credit.

7.  It cannot be gainsaid that Order 14 proceedings should be short and sharp.  It has often been said that if there is need to sit down the matter is not fit for an Order 14 summary judgment application.  Whilst I would, in no way, advocate that an Order 14 application should be embarked upon if it was likely to involve lengthy arguments or more than a very short time but once there has been a hearing and judgment has been given the situation has to be considered in the light of the fact that the judge has considered the arguments and reached a firm conclusion.

8.  There were a number of other grounds of appeal which were referred to by counsel in argument.  I would categorise them as being arguments which can be made but they do not appear to me to be more than that.  Some of them, indeed, I would consider to be merely comments which would not constitute grounds of appeal or a reason for the Court of Appeal could allow an appeal.  A further matter which needs to be borne in mind is that even if the Court of Appeal were to allow an appeal in this matter, leave to defend might only be given on very stringent terms.

9.  It was said that a stay should be granted because the appeals would otherwise be rendered nugatory.  This was a point that was the focus of the Mr Hingorani’s submissions.  The core of the argument was that it was said that the plaintiff was highly leveraged and that there were very substantial bank loans which were due to fall payable in September, October and November of this year.  It was said that if the judgment were enforced, the various banks might well decide to call in the loans and seize the assets over which the plaintiff would then have control.

10.  There are a number of points which need to be considered in this respect.  The plaintiff has filed evidence, which includes clarifying what was before and should have been before the judge below.  That demonstrated that the plaintiff is solvent and is perfectly capable of paying its debts.  It may have borrowed a considerable amount of money but it is perfectly capable of financing that borrowing.

11.  I consider that the argument that the various banks would call in their loans is an argument that is made without proper foundation.  There is no basis for it.  There is no indication that the creditors, are seeking to enforce any judgment and there is no reason why they should bring proceedings, as far as I can see.  This is simply a company that is borrowing money, has a substantial business and is able to finance its outgoings.  I do not see that any ground that this appeal would be rendered nugatory has been made out.

12.  Importantly, the argument has to be seen in the light of the undertaking given by leading counsel on behalf of the plaintiff and its wholly owned subsidiary, PEWC Asset Holdings Ltd (“PAH”), that neither of them will dispose, transfer, encumber, pledge, charge or otherwise deal with the PacMos shares transferred to PAH without leave of the court following the hearing of an inter partes summons.

13.  In my view, there are sound grounds for not granting a stay pending appeal in this matter.  I consider that the assets which are the subject of the judgment are safest as the judge left them.