ZHANG HONG LI AND OTHERS v. DBS BANK (HONG KONG) LTD AND OTHERS

HCCL 2/2011

[2018] HKCFI 34

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 2 OF 2011

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REASONS FOR DECISION

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1.  This is an application by the 2^nd and 4^th defendants for a stay, pending appeal, of the further conduct of the proceedings as directed in my judgment dated 13 April 2017. The application for stay was issued on 21 June 2017 but was only heard on 6 December 2017. I will have more to say about that later. I dismissed the stay application on 6 December 2017 and indicated that I would hand down my reasons for doing so at a later date. These are my reasons.

2.  §7 of my sealed judgment dated 13 April 2017 stated:

“7. With respect to the further conduct of the proceedings, it is directed that:-

(i) Unless the parties or any of them apply within 28 days from the date of this Judgment to vary this direction, the solicitors for the 3^rd and 4^th Plaintiffs and the solicitors for the the 2^nd and 4^th Defendants jointly appoint and instruct Satyajit Das and Pawan Malik to prepare an expert report within 42 days setting out the value of the assets in the 4^th Plaintiff’s portfolio as at the date of the issue of the Writ herein on 28 February 2011; and, secondly, setting out their opinion on what the value might have been on 28 February 2011 if 4^th Plaintiff had not acquired US$83m worth of AUD from 24 July to 5 August 2008 and had not purchased the 3 decumulators on 15 August 2008, 27 August 2008 and 29 August 2008 respectively but had carried out the other transactions listed in the 2^nd Schedule of the Witness Statement of Bruno Arboit that were unrelated to the purchases of US$83m worth of AUD from 24 July to 5 August 2008 and unrelated to the purchases of the 3 decumulators. The report should be filed in court when it is produced.

(ii) Within 28 days of the said joint expert report being filed in court, the parties are to exchange and file written legal submissions (not exceeding 40 pages); and within 14 days thereafter, the parties are to exchange and file written legal submissions in reply (not exceeding 25 pages). These submissions should deal with the quantum of the award of equitable compensation that should be made against the 2^nd and 4^th Defendants; interest; and costs of the proceedings.

(iii) Liberty to apply.”

3.  On 19 May 2017, I granted an extension of time up to 22 June 2017 for the parties to vary the expert direction on quantum I had given on 13 April 2017 and I also directed that if there was no application by 22 June 2017 to vary the expert direction on quantum, the experts were to provide their joint report on or before 7 July 2017.  I granted further liberty to apply.

4.  No application was made to vary the expert direction on quantum. Instead, on 21 June 2017, the 2^nd and 4^th defendants applied by summons for an order that the further conduct of the proceedings, as directed in my judgment of 13 April 2017 and as varied by my direction on 19 May 2017, be stayed until after the determination of the appeal lodged by the 2^nd and 4^th defendants on 21 June 2017 against my judgment.  On 6 July 2017, the 2^nd and 4^th defendants applied by summons for a further order that the time for the performance of the expert directions set out in §7 of my sealed judgment, as varied by my direction on 19 May 2017, be extended until the disposal of the stay summons.  I also dealt with this further summons on 6 December 2017. Surprisingly, the 3^rd and 4^th plaintiffs did not apply by cross summons, either on or about 21 June 2017 or on or about 6 July 2017, for an order that unless the expert opinion of Pawan Malik was provided on or before a specified date, the 2^nd and 4^th defendants be barred from adducing any expert evidence.

5.  The reason why I made these directions for a further joint expert report from Satyajit Das and Pawan Malik is set out in §425 of my judgment dated 13 April 2017:

“425. This is a case where it is appropriate to award equitable compensation against DBS Trustee in favour of Arboit and Sutton, that is to say, not compensation for loss but compensation that is restitutionary or restorative. I do not find any assistance from the plaintiffs’ submissions on the basis upon which I should award equitable compensation ¹¹³⁴. It is not necessary to order an account as the assets in Wise Lords’ portfolio are well documented. I intend to adopt a robust approach to assess the equitable compensation by, firstly, attempting to determine the value of the assets in Wise Lords’ portfolio on the date of the issue of the Writ in these proceedings on 28 February 2011; and, secondly, by attempting to assess what that value might have been on 28 February 2011 if Wise Lords had not acquired US$83m worth of AUD from 24 July to 5 August 2008 and had not purchased the 3 Decumulators but had carried out the other transactions listed in Arboit’s 2^nd Schedule that were unrelated to the purchases of US$83m worth of AUD from 24 July to 5 August 2008 and unrelated to the purchases of the 3 Decumulators ¹¹³⁵; and, thirdly, by awarding the difference between the 2 values to Arboit and Sutton, being the trustees of the Trust, as equitable compensation. I need further assistance from the financial experts, Das and Malik, to enable me to do so and I give further directions below for a further joint report to be obtained from them.

¹¹³⁴ Annex IV to the plaintiffs’ final submissions is most unhelpful. The questions I asked during final submissions were largely unanswered: see [T5/Day21/77(15)(22)] [T5/Day21/113(14)-(17)] [T5/Day21/118(10)-(12)].

¹¹³⁵  I have considered the submissions contained in pp13-15 of the Defendants’ Note on Queries Raised by the Court. My assessment is being made on the simplistic basis that no other transactions are being entered into other than the other transactions listed in Arboit’s 2^nd Schedule that were unrelated to the purchases of US$83m worth of AUD from 24 July to 5 August 2008 and unrelated to the purchases of the 3 Decumulators.”

6.  In giving directions on 13 April 2017 for the further conduct of these proceedings, I afforded an opportunity to the parties, if they or any of them so wished, to vary my direction and to suggest some other basis of assessing equitable compensation.  I wished to rule on any such application in good time so as to enable the Court of Appeal to consider my ruling on the basis of assessing equitable compensation, in the event of my judgment being appealed.

7.  In giving directions on 13 April 2017 and 19 May 2017 for the provision of the experts’ joint report on or before 7 July 2017, I had wanted to assess equitable compensation based on the experts’ joint report and to make an award of equitable compensation in good time so as to enable the Court of Appeal to consider my assessment of equitable compensation, in the event of my judgment and my assessment of equitable compensation being appealed.

8.  Instead of applying to vary the expert direction on quantum, on 21 June 2017 the 2^nd and 4^th defendants appealed against my judgment and applied to stay the further conduct of the proceedings.

9.  The principles governing an application for a stay pending appeal are well established and succinctly summarised by Chow J. in  Tang Ying Loi v. Tang Ying Ip alias Tang Ying Yip & Ors.  HCA 2487/2009, 14 April 2015 at §3:

“3. The principles governing an application for a stay of execution of a judgment pending appeal are well established. The applicant is required to demonstrate a “good reason” for a stay of execution. Generally speaking, the existence of merely an arguable appeal cannot by itself amount to a sufficient reason to justify a stay. It is the minimum requirement before a court would even begin to consider granting a stay. In other words, if the court is not convinced that there exist arguable grounds of appeal, no stay will be granted however exceptional the circumstances may otherwise be justifying a stay of execution. On the other hand, the existence of a strong appeal or a strong likelihood of success will usually by itself enable a stay to be granted because this would constitute a good reason for a stay. In most cases, where the court is faced with simply the existence of an arguable appeal, it becomes necessary for the applicant to provide additional reasons as to why a stay is justified. Commonly, this is done by demonstrating that without a stay the appeal would be rendered nugatory, for example, because of an appreciable risk that the respondent to the appeal would not be able to repay in the event of a successful appeal against a money judgment, or because the failure to grant a stay would have a serious deleterious effect on the applicant. In considering an application for a stay pending appeal, it would be impractical and even undesirable for the court to go deeply into the merits or strengths of the appeal, although the court must still form a preliminary view of these aspects. For the above principles, see the judgment of Ma J (as he then was) in Stay Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84.”

10.  Having perused the Notice of Appeal and considered the submissions of the 2^nd and 4^th defendants, it is my preliminary view that there are arguable grounds of appeal.  I do not consider that there is a strong likelihood of the appeal succeeding.  Accordingly, the applicant must provide additional reasons why a stay is justified.

11.  This is not an application for stay against a monetary judgment. This is not a case where the appeal would be rendered nugatory because of an appreciable risk that the respondent would not be able to repay the monetary judgment.  This is a case where the cost of the further proceedings may be wasted if the appeal is successful.  Chow J faced a similar application in Tang Ying Loi v. Tang Ying Ip alias Tang Ying Yip & Ors. HCA 2487/2009, 14 April 2015.  He dismissed the application for the reasons expressed in §§5 to 12 of his decision as follows:

“5. In any event, Mr Chain accepts that the 1^st and 3^rd defendants’ appeal is arguable (ie not frivolous), but he says that it is not strong. For the present purpose, I am content to proceed on the basis that the 1^st and 3^rd defendants’ appeal is reasonably arguable. I am unable to accept, however, that they have a strong appeal or a strong likelihood of success in the appeal.

6. The question is whether there is any “good reason” to order a stay of execution pending appeal.

7. The Judgment does not require the 1^st and 3^rd defendants to pay any money or transfer any property to the plaintiff or to the Estate of Tang Pui King, deceased (“the Estate”), at this stage. It directs an inquiry to be carried out to ascertain the profits and compensation which the 1^st defendant is liable to account or pay to the Estate. Before such inquiry can be carried out, some further discovery will have to be made, and expert evidence on valuation of the property known as Nos 129-131 Castle Peak Road, Yuen Long, New Territories, Hong Kong (“the Property”) and evidence regarding the rentals and other income (if any) derived from holding the Property as well as expenses incurred in relation to the Property (including costs of repair and maintenance of the Property) will have to be prepared. However, there is no question of the 1^st and 3^rd defendants’ appeal being rendered nugatory if a stay is not granted.

8. I am told that the appeal has been fixed to be heard by the Court of Appeal on 15 October 2015, some 6 months from today. The evidence mentioned above has not yet been exchanged. The parties’ estimate of the length of the hearing of the inquiry is 2 days. Given the state of the court’s diary, it is unlikely that the hearing of the inquiry will take place before 15 October 2015. Further, I shall be prepared to direct that the inquiry be heard on a date not before 15 December 2015, ie 2 months after the hearing of the appeal, which would minimise the risk of wasted costs being incurred in relation to the actual hearing of the inquiry.

9. I accept that some costs incurred or to be incurred in preparing for the inquiry may be wasted and be irrecoverable by the 1^st and 3^rd defendants should they succeed in the appeal, but the risk of wasted or irrecoverable costs is inherent in our system of litigation and cannot by itself justify a stay of execution pending appeal: see Strix Ltd v Otter Controls Ltd [1995] RPC 675, at 679 per Laddie J; Magic Score Ltd v HSBC, HCA 11077/1994 (24 February 2006), at paragraph 12 per Lam J (as he then was).

10. This having been said, the complexity and costs of the inquiry are factors which the court can and does put in the scales in the court’s balancing exercise as to whether a stay ought to be granted. The inquiry in the present case is, in my view, relatively straight forward. Thus, I am not prepared to attach much weight on this factor, particularly having regard to the direction mentioned above regarding the fixing of the date for the hearing of the inquiry.

11. Mr Mok also relies on the fact that the plaintiff has put in a respondent’s notice by way of cross appeal which, if successful, would have a substantial impact upon the scope of the inquiry. Again, I am content to proceed on the basis that the plaintiff’s cross appeal is reasonably arguable, but I do not consider that, for the purpose of considering whether there ought to be a stay pending appeal, it has any greater significance than the 1^st and 3^rd defendants’ appeal.

12. I have been reminded by Mr Chain that the plaintiff is now 87 years old, and was only able to pursue the present action as a result of information coming to light after previous protracted litigations commenced by Ying Lam and the plaintiff to compel the 1^st defendant to provide an account concerning the administration of the Estate and the Loan respectively.  Any further delay in the conduct of the inquiry would, in my view, be prejudicial to the plaintiff in view of his advanced age.”

12.  An enormous amount of costs has already been expended in this massive case. The additional costs of a joint expert report to be prepared within the narrow confines of my direction and counsels’ further submissions on the relatively straight forward matter of assessing the amount of equitable compensation pale into insignificance when compared with the costs already expended.  Just as Chow J did, so do I accept that some costs to be incurred in preparing for the assessment of equitable compensation may be wasted by the 2^nd and 4^th defendants should they succeed in their appeal, but the risk of wasted costs is inherent in our system of litigation and cannot by itself justify a stay of execution pending appeal. Indeed, those wasted costs may be recoverable from the 3^rd and 4^th plaintiffs should the 2^nd and 4^th defendants succeed in their appeal.

13.  Counsels’ submissions on interest and costs of the proceedings have to be made in any event, regardless of the success or failure of the 2^nd and 4^th defendants’ appeal.

14.  The plaintiffs have cross appealed against the other defendants and seeking equitable compensation from them.  It is submitted that, if the plaintiffs prevail in their cross appeal, it would be unfair to deny these other defendants a right to participate in the quantum exercise to assess the amount of equitable compensation. At trial, the defendants were all represented by the same firm of solicitors and by the same counsel who continue to act for the 2^nd and 4^th defendants in the quantum exercise.  It has not been suggested that the participation of the other defendants in the quantum exercise will alter the basis of assessing equitable compensation or the expert opinion evidence to be adduced in the assessment. I am not satisfied that the “so-called unfairness” is sufficient reason to order a stay. 

15.  After hearing from counsel, I dismissed the stay application and indicated that I would hand down my reasons later and then I made the following directions and orders:

(a)   the parties to jointly apply to fix a directions’ hearing for the further conduct of the proceedings, and, in particular, for directions for experts’ reports to be prepared and exchanged and, thereafter, for a joint expert report to be prepared in accordance with my directions of 13 April 2017, and for the parties to exchange written submissions in accordance with my directions of 13 April 2017, and for further directions, including fixing hearing dates for oral submissions and/or to receive to oral evidence from the experts, if so required.  Such application to be made within 14 days of the Court of Appeal reaching its decision on the appeal from the judgment of this court of 13 April 2017.

(b)   The hearing of the 3^rd and 4^th plaintiffs’ application for interim payment fixed to be heard on 15 May 2018 be vacated and, if the application for interim payment is still subsisting after the decision of the Court of Appeal, the 3^rd and 4^th plaintiffs to apply to refix the hearing of the application for interim payment within 14 days of the Court of Appeal reaching its decision.

(c)   Liberty to apply.

(d)   Costs of the summons dated 21 June 2017 and 6 July 2017 and of the hearing on 6 December 2017 be reserved.

16.  On 2 November 2017, the Court of Appeal gave notice to the parties that the appeal and cross appeal from my judgment would be heard on 8 May 2018 with 4 days reserved.  I only became aware of this shortly before the hearing on 6 December 2017.  In the course of my exchanges with counsel, I expressed my dissatisfaction that the stay application, which had been issued on 21 June 2017, was only fixed to be heard more than 5 months later on 6 December 2017 and I also expressed to the parties my view that there was insufficient time between 6 December 2017 and 8 May 2008 to complete the quantum exercise. The following is a summary of my observations to counsel which set out the reasons for the directions I made.

17.  The 2nd and 4th defendants’ summons for the stay was fixed originally to be heard on 22 August 2017.  When I learned of that, I intimated to my clerk that I wanted to refix the application to be heard earlier.  I was anxious to get on with it and to refix the hearing to a date in July, but, apparently, counsel for the 2nd and 4th defendants were not available in July, and, to make matters worse, the 3^rd and 4^th plaintiffs’ counsel were also not available between 1 and 29 August. As the hearing date was to be fixed in consultation with counsel’s diaries, the hearing date on 22 August was no longer appropriate. After a substantial exchange of correspondence between the parties, the stay summons was re-fixed to be heard on 6 December 2017.

18.  Even though the summons for the stay had been refixed to be heard many months later on 6 December 2017, nobody expected the appeal to be listed to be heard so early.  The idea of proceeding with the quantum exercise before the Court of Appeal heard the appeal was sensible because if an appeal was also going to be lodged against my assessment on quantum, the Court of Appeal could deal with it at the same time as the hearing of the original appeal.  However, given the further steps that needed to be taken, as set out in §15(a) above, and given the state of the court’s diary, it was not possible, between 6 December 2017 and 8 May 2018, to complete the quantum exercise in sufficient time to enable an appeal to be lodged against my assessment of quantum and to be dealt with by the Court of Appeal at the same time as the hearing of the original appeal.

19.  For these reasons, I exercised my discretion to make the directions set out in §15 above.  Given the current state of affairs, the road map provided by these directions is a pragmatic solution which enables the 3^rd and 4^th plaintiffs to refix the assessment of quantum expeditiously in the event that the 2^nd and 4^th defendants’ appeal is dismissed.

20.  Parties ought not to be granted the indulgence of fixing hearing dates in consultation with counsels’ diaries in cases which ought to be dealt with expeditiously.