HUANG QINGZHAN v. CHINA DING YI FENG HOLDINGS LTD

HCMP 1102/2019

[2020] HKCFI 689

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1102 OF 2019

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D E C I S I O N

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1.  In my Decision dated 19 March 2020[1], I hold that the Company failed to pay the first Interest Payment to Huang on 31 March 2016, which constituted a breach of Conditions 4 and 5 of the Notes and, in turn, a “payment default” under Condition 8(i). Huang was entitled to seek early redemption of the Notes, which he did through the notice of redemption contained in PMT’s letter of 16 August 2016. The Company was ordered to pay HK$10 million (being the outstanding principal of the Notes) together with interest at 5% per annum from 1 October 2019 up to the date of judgment and, thereafter, at judgment rate until payment (“Order”).

2.  By letter dated 27 March 2020, TAYY on behalf of Huang stated that by reason of the Order, the statutory demand dated 2 May 2019 was valid and demanded the Company to pay the judgment sum within the next 5 days, failing which Huang would petition to wind up the Company. 

3.  On 2 April 2020, the Company served on Huang a notice of appeal against the Order.  On 8 April 2020, the Company obtained leave to file a summons for stay of execution of the Order, which was filed on the next day.  The summons was issued under Order 59 rule 13 of the Rules of High Court and inherent jurisdiction of the Court.   

4.  The principles governing application for stay of execution of judgment are well established and have been stated by Ma J (as he then was) in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 as follows:

(1)  Unless the defendant can justify a stay of execution, one will not be ordered.  The practice of the court is that justification can be demonstrated only if good reasons exist (87D – F).

(2)  The existence of an arguable appeal is the minimum requirement before a Court will even consider granting a stay.  If the Court is not convinced that there exist reasonable grounds of appeal, no stay will be granted (88I – 89B).

(3)  Conversely, the existence of a strong appeal or a strong likelihood that the appeal would succeed will usually by itself enable a stay to be granted because this would constitute a good reason for a stay (89C).

(4)  If there is only an arguable appeal and the Court would need to consider whether the absence (or existence) of a stay would render an appeal nugatory (thus bringing into focus the relative prejudice that may be caused to the appellant and to the respondent by a stay of execution) and the merits of the appeal (87G).

(5)  As to whether an appeal would be rendered nugatory, the Court must first have regard to the nature of the order that was the subject matter of the appeal.  If the order appealed against was a money judgment, the Court would require evidence as to why the levying of execution would result in the appeal being rendered nugatory.  It would be sufficient for the appellant to demonstrate that the failure to grant a stay would have a serious deleterious effect and a financial ruin is not necessary.  However, the Court would require good evidence to support the contention.  A bare assertion was not enough (87H – 88F).

(6)  The successful party should not be deprived of its fruit of success and it was always relevant to consider the prejudice that would be caused to the successful party in the event a stay was granted and if necessary, to impose conditions so as to minimise the prejudice caused to him (89H – I).

5.  In a similar vein, in Credit Lyonnais v SK Global Hong Kong Limited [2003] 4 HKC 104, Ma CJHC (as he then was) explained the basis of the exercise of the Court’s discretion to order a stay of execution[2] thus:

“The exercise of the discretion whether or not to order a stay of execution must be made in accordance with principle. In various parts of her judgment, Chu J referred to the ‘balance of convenience’. In my view, this was not the appropriate test. While it would not be right to set out an exhaustive list of relevant factors for the exercise of the inherent jurisdiction in this context, it is important to bear in mind that the jurisdiction will only be activated where an injustice would otherwise be caused, to prevent abuse, to preserve the dignity of the court or to facilitate the administration of justice”. (at §3) (underlined added)

6.  Ms Chyvette Ip, counsel for the Company submits that the appeal is meritorious.  There are good reasons for the court to grant a stay and a conditional stay would be unjustified. 

Merits of appeal

7.  On merits of the appeal, Ms Ip contends that this Court’s finding that “the particulars of the DBS account supplied in Schedule 5 of the SA was not the Registered Account appear to have omitted to take into account [Huang’s] admission that the DBS account was his Registered Account”.  It is said that such finding would impact on the other finding that the payment made by the Company failed to comply with the terms of the Notes.  I do not consider this ground to be arguable, given that even if Huang made the alleged admission (I do not think he did), it is irrelevant to the interpretation of the terms of the Notes, which is essentially an objective exercise and the subjective intent of the parties is irrelevant (see §§45, 55 of Decision).  More importantly, the argument ignores the fact that even assuming the DBS account was the Registered Account, the Company failed to pay the first Interest Payment by transferring the same to such account, as required by the first prescribed method (see §§50 – 52 of Decision). 

8.  As to the second main ground of appeal, Ms Ip submits that this Court’s finding that the Company’s payment did not comply with the conditions of the Notes “appeared to have focussed on the fact that the [Company] delivered to [sic] the Cheque to an address in Hong Kong but failed to take fully into account other aspects of evidence which showed that the address was the Hong Kong correspondence address given by [Huang]”, such address “belonged to Guoco” and the Company also caused the Cheque to be paid into the Registered Account.  I do not think that this ground has any reasonable prospect of success, as the matters said to have been overlooked or not considered were addressed in §§53 – 54 of Decision. 

9.  Lastly, Ms Ip argues that this Court should have found that it was Huang’s fault in failing to provide the correct information for the Registered Account which, it is said, led to the Company’s inability to pay him until August 2016.  Contrary to the argument, the point was considered in §§58 – 60 of Decision.  The Company has not articulated any reason as to why, in light of such matters, the Court should have made the finding contended for. 

10.  For the above reasons, I am not satisfied that the Company has identified any reasonable grounds of appeal.  It follows that there is no basis for the court to grant a stay of execution of the Order. 

No good reasons for stay

11.  Even if, contrary to my view, the Company does have reasonable grounds of appeal, I would still refuse to exercise my discretion to grant a stay. 

12.  Ms Ip accepts that the burden is on the Company to demonstrate that there are good reasons for the Court to grant a stay.  She submits that the following matters constitute good reasons for a stay.

13.  First, it is said that the Company is a Chapter 21 investment company.  The purpose of issuing the Notes is to raise funds and “waits for opportunities to make investments, which gain a higher return than the interest paid on the Notes”.  But for the Order, the Company would have available to its use the principal until 30 April 2023.  Without a stay, the Company’s ability to take advantage of investment opportunities for the remaining life of the Notes would be hampered. 

14.  In effect, Ms Ip is asking the Court to deny Huang of the fruit of the Order so that the Company can continue to use the principal advanced by Huang until the maturity dates of the Notes.  This does not constitute a reason, let alone a good reason for the Court to grant a stay. The starting point is that Huang, being the successful party, is entitled to be paid the judgment sum.  This is particularly so where, as here, the judgment sum is the same amount which Huang has lent to the Company in the first place. 

15.  If the Court were to grant a stay, Huang would be prejudiced, as it would mean that he would not be able to obtain  repayment pursuant to the notice of redemption issued in August 2016.  The Company has not addressed or offered any means to address the prejudice to Huang if the Order is stayed.  For this reason alone, I would not exercise my discretion to grant a stay.

16.  Second, Ms Ip argues that without a stay, the “loss” to the Company “would not be compensated if the Appeal succeeds” because of:

(1)  the relatively short time until the maturity of the Notes;

(2)  the current court closure which, it is said, would likely lead to a longer than usual period before the appeal could be heard and before the Company would be able to recover the judgment sum if its appeal succeeds;

(3)  Huang lives in the Mainland and has no asset in Hong Kong;

(4)  the judgment sum, once paid to Huang, may be dissipated.  This is because the Company has in its evidence filed in support of the summons, questioned the “true beneficial ownership” of the Notes, and Huang “has chosen not to provide a proper explanation”; and

(5)  even assuming Huang has the financial resources to repay the Company, it is likely that the Company “would not be able to recover anything until close to or after the maturity date.”  As such, without a stay, the appeal would be rendered nugatory.

17.  So far as the first 2 points are concerned, I do not see why the Company would suffer any loss which could not be compensated, even assuming it is a relevant consideration (I do not think it is).  There is no evidence to suggest that the Company does not have means to pay the judgment sum or that it cannot raise funds for its use.  Indeed, in the evidence filed in support of the summons, the Company emphasises its financial standing in particular, “the substantial cash balance on top of its other assets”.  I am unable to see how requiring the Company to repay the principal advanced by Huang would give rise to the loss alleged by the Company.  

18.  As for the assertions that Huang does not have any asset in Hong Kong, that he is not the “true beneficial owner” of the Notes and that he may dissipate the judgment sum if the same is paid to him, I do not find there is any merit in these bare assertions.  In any event, I do not think it is open to the Company to make such assertions at this stage, having all along fought the proceedings on the basis that Huang is the owner of the Notes. 

Conditional stay?

19.  As I do not consider there is any proper basis to grant a stay, the question whether a stay should be granted upon condition does not arise.  For completeness, I will deal with the point briefly.

20.  Ms Ip submits that before seeing the parties’ evidence and submissions, this Court expressed a preliminary view in the proposed directions dated 8 April 2020 that it was minded to grant a stay on condition of a payment into court.  The submission ignores the fact that in the papers lodged in support of the application for leave to file the summons for stay during the general adjournment period, the only ground identified by the Company for seeking a stay was that Huang is not a resident, and has no known address in Hong Kong.  It was in response to that contention that this Court pointed out that Huang has asset within Hong Kong, being the principal and interest due on the Notes and, consequently, even if the Court is minded to grant a stay, it is likely to be upon the condition that the Company pays the judgment sum into court. 

21.  Nevertheless, Ms Ip contends that it is wrong for the Court to exercise its discretion to grant a stay upon the condition that the Company pays the judgment sum into court because:

(1)  a payment into court “would not militate the prejudice to the [Company]”;

(2)  the Company would suffer an additional prejudice for which there is no compensation, as payment into court does not stop interest running and the interest accrued on the sum paid into court would be “negligible”; and

(3)  there is no risk of the Company’s default, given its financial strength.

22.  In the affirmation filed on behalf of Huang, Ms Lin said that the court should dismiss the summons or alternatively, order the Company to pay the judgment sum into court pending determination of the appeal.

23.  Ms Ip contends that the Company has “substantial cash balance on top of its other assets and clearly will have the ability to meet its financial obligations”.  I do not think the point is substantiated by the evidence adduced:

(1)  the Company relies on the “Liquidity and Financial Resources” in its 2019 Annual Report which shows that as at 31 December 2019, the “group” had bank balances and cash of approximately HK$208,065,000.  However, if one looks at the consolidated statement of financial position of the “group”, it can be seen that as at 31 December 2019, the current liabilities of the “group” was HK$166,387,889, leaving only a relatively small margin of HK$41,677,111 (pp 58 – 59 of 2019 Annual Report). 

(2)  More importantly, it is the financial position of the Company, rather than that of the “group”, which is relevant.  According to the statement of financial position of the Company, as at 31 December 2019, the bank balances and cash of the Company was HK$183,016,529, which was less than its current liabilities of HK$187,608,752 (p 115 of 2019 Annual Report). 

(3)  The Company has not adduced any evidence on its current financial position such as its management accounts.  Without such accounts, it is impossible for the court to know the current financial position of the Company. 

24.  It follows that I do not accept Ms Ip’s contention that there is no risk of default if the Company fails in its appeal.  This is an additional prejudice to Huang which militates against the Court granting a stay of execution. 

25.  For the above reasons, I dismiss the Company’s summons for stay of execution.  I make a costs order nisi that the Company do pay the costs of and occasioned by the summons, to be assessed by way of gross sum assessment. Given that Huang now acts in person, I give him 7 days from the date hereof to provide a statement of costs, and the Company shall provide its comments on the statement of costs, if any, within 3 days thereafter.