XCHRX PACIFIC FOUNDATION FINANCE LTD. v. FAIRYOUNG HOLDINGS LTD.

HCA4029/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO.4029 OF 1998

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D E C I S I O N

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1. I will grant the stay of execution of the judgment until the determination of the appeal against Master Bharwaney's judgment. In exercising the discretion, I have considered, in particular, the following factors :

1. The appeal will be heard shortly on 21st December 1998.

2. The Plaintiff is indebted to a subsidiary company of the Defendant in the sum of $39 million. On the Plaintiff's own case, it admitted that the sum is payable on 31st January 1999, if a 30-day demand is given on 31st December 1998. The sum to be paid by the Plaintiff is greater than the judgment sum of $15 million by $24 million. The absence of connection between the present claim and the indebtedness of the Plaintiff towards the subsidiary company is only one of the factors to be taken into account. In my view, the indebtedness by the Plaintiff to the subsidiary company constitutes one of the special circumstances. The Plaintiff is less likely to be prejudiced by depriving it of the fruits of the judgment : Burnet v. Francis Industries plc [1987] 1 WLR 802.

3. The financial difficulties of the Defendant is shown by the announcement of 4th March 1998, and the Interim Result. Payment of the judgment sum at this stage would involve a forced sale of its asset at an under-value.

4. As to the merits of the appeal, the defence is that the Plaintiff should have put on enquiry on the irregular nature of the loan which was not for the benefit of the Defendant, but to repay Angklong's loan to the Plaintiff. It is also suggested that the loan was obtained by John Chan in order to pay his own company's indebtedness to the Plaintiff.

Mr Reyes, on the other hand, drew my attention to various parts of the By-laws of the Defendant and the trading activities of the Defendant. He submitted that this showed that the loan must be for the benefit of the Defendant, and there was no evidence of actual knowledge by the Plaintiff of any irregularity.

Obviously, these matters, together with the question whether the letters of 10th March 1998 and 15th September 1998, constituted clear admissions of indebtedness by the Defendant, are matters that need to be argued at the hearing. I would say no more at this stage than that the appeal appears to be a bona fide one. I just cannot say that the appeal is so obviously unmeritorious that I ought not grant any indulgence to the Defendant.

5. As to the Plaintiff's inability to repay the judgment sum, Mr Ismail submitted that the petition for winding up of the Defendant presented by the Plaintiff yesterday is an indication that the Plaintiff is desperate for money.

I prefer not to base my discretion on this fact, but clearly the Plaintiff has a large outstanding debt to pay and there is money it needs to recover. Even after deducting the $15 million judgment, the Plaintiff is still liable to pay by way of principal to the subsidiary company of $24 million. Angklong owed $20 million to the Plaintiff. The Plaintiff had of course recovered judgment against Angklong, but Angklong is controlled by John Chan, who is its sole beneficial owner. Angklong is a BVI company and Mr Chan is now under investigation by the police. The Plaintiff has an issued and fully paid share capital of $10,000. Obviously, this is a matter that I have to consider.

2. These are the grounds of my decision, and accordingly I will grant the stay.