RICKEED INDUSTRIES LTD AND ANOTHER v. HONG KONG TOHKOH CO LTD

HCA 2280/2015

[2022] HKCFI 2458

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2280 OF 2015

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D E C I S I O N

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Introduction

1.  By a judgment dated 13 January 2022 (“Judgment”), DHCJ P Fung ruled in favour of the Plaintiffs, awarding them damages of RMB 5,022,268.87 with interests and costs. The counterclaim, which was not pursued, was dismissed. The Defendant has lodged an appeal to the Court of Appeal on 10 February 2022.

2.  This is an application by the Defendant for a stay of execution pending determination of the Defendant’s appeal. The Defendant claims that there are strong grounds of appeal and that, if there is no stay, the appeal would be rendered nugatory; hence the balance of justice is in favour of a grant.

3.  The application is opposed by the Plaintiffs.

Legal principles

4.  The principles governing stay of execution pending appeal are settled and summarized in Bright Gold Ltd v Megal Well Development Ltd [2019] HKCA 1440, at §13, following Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84:

“(a) The applicant must show an arguable ground of appeal (viz. one with reasonable prospect of success) before the discretion to grant stay is engaged;

(b) Even if arguable grounds exist, there must be other circumstances justifying the deprivation of the successful party of the fruit of the judgment. Sometimes, the applicant may do so by showing the existence of strong ground of appeal. Sometimes, the applicant may do so by showing that the appeal would be rendered nugatory if no stay is granted. In either case, the court must also have regard to the prejudice that could be suffered by the successful party if a stay is granted. In all cases where the discretion is engaged, ultimately it is a balancing process with common sense;

(c) In assessing the strength of the appeal for the purpose of a stay application, it is impracticable and undesirable to go deeply into the merits. A broad brush approach is called for. Thus, counsel should not attempt to deploy full arguments on law and facts quoting in extenso all the relevant evidence and transcript as if the application for stay is a platform for a rehearsal of the appeal proper. Generally, with the benefit of written skeleton submissions, the court is able to assess whether an appeal has a high prospect of success without lengthy oral submissions from counsel. Application for stay of execution should not be a dry run of the appeal.”

5.  A finding of fact may only be challenged as an error of law if:

(a)   The decision was based on a finding of fact or inference from facts which was perverse or irrational;

(b)   There was no evidence to support the finding;

(c)   The decision was made by reference to irrelevant factors; and

(d)   The decision was made without regard to relevant factors.

See: Kwong Mile Services Ltd v CIR (2004) 7 HKCFAR 275, §§31-34, Bokhary PJ.

6.  The appellate court should not disturb the decision on fact-finding unless it regards that decision as contrary to the true and only reasonable one: Kwong Mile, §37, Bokhary PJ.

Strong grounds of appeal

7.  The appeal is against both liability and quantum. Despite the length of the notice of appeal, the grounds are primarily targetted at the findings of fact or inferences of facts made by the Deputy Judge.

8.  Indisputably, the Deputy Judge did not refer, item by item, to the agreed list of issues in his judgment.

9.  On the question of liability, the appellant contends that, in respect of issues 3-5, the Deputy Judge (a) came to a finding that the goods were defective without evidence in support; and (b) ignored the Plaintiffs’ burden of proof to show defects present at a time before risk passed and misdirected himself that the Defendant had the burden of proving that the defects were caused by something that occurred whilst the goods were in transit.

10.  With regard to (a), the appellant emphasizes §85 of the Judgment in which the Judge makes his finding on liability and submits that it does not support the finding of defects in the majority of the goods delivered.

11.  However, the Deputy Judge has in fact analyzed at length the correspondence between the parties in §§23-53 of the Judgment, which contained admissions on behalf of the Defendant that the goods had had substantial quality issues and that goods under the 1^st PO were defective. The Deputy Judge then considered the events leading up to the execution of the Negotiation Document and Replacement Agreement by the parties before coming to a conclusion on liability and the expert evidence. The Deputy Judge also found that there was subsequent delivery of 17,600 items of free replacement of defective goods under the 1^st and/or 2^nd PO (§§72-81 and 100 of the Judgment), that could support a finding of defects in the goods.

12.  Whilst there are arguable grounds of appeal of liability under (a), I am of the view that they cannot be said to be strong grounds.

13.  With regard to (b), the Defendant’s complaint is in substance that the Judge reversed the burden of proof. In the absence of a finding that the defects occurred before the passing of risk, the Plaintiffs could not have established a breach of contract.

14.  However, the Judgment dealt with, on the one hand, the Defendant’s version of what caused the defects and rejected that version (§§91-92). On the other hand, the Deputy Judge found that the Plaintiffs had implemented proper warehouse humidity, temperature control, inventory management and the irrelevance of the passing of risks on the basis of shipping documents (§§58, 59, 91, 92 and 96 of the Judgment). He also referred to the Defendant’s admission of problems in the storage and protective sheets before the goods were shipped to the Plaintiffs. The inference was that the defects occurred before the risk passed.

15.  Whilst the Defendant has raised arguable grounds of appeal under (b), they cannot be said to be strong grounds.

16.  On the question of quantum, the ground of appeal concerns an arguable point of law as to application of sections 55(2) and (3) of the Sale of Goods Ordinance, Cap 26.

17.  The Defendant also contends that the Deputy Judge did not determine what the defects were and the quantity of defective goods. The Deputy Judge has acted without evidence as to whether the difference in price paid by the Plaintiffs for the goods and resale price arose as a result of breach of contract or fall in market price; that the Plaintiffs did not prove that the goods used in the calculation of damages were the goods delivered by the Defendants; and that the Plaintiffs have elected not to call expert evidence to establish that the diminution in value of the goods arose from breach of the contractual warranty.

18.  In §107 of the Judgment, there was reference to the quantity of defective goods which was accepted by the Deputy Judge. The Deputy Judge expressly noted that the Defendant did not seriously challenge the Plaintiffs’ documentary evidence in cross-examination or adduce counter-evidence. Nor had the Defendant adduced evidence to prove that the Plaintiffs had failed in the duty of investigation eg by suggesting that the goods could have fetched higher prices in the sub-sale. In such circumstances, it is not clear how the Defendant can say that the decision on quantum was contrary to the true and only reasonable one and should be overturned.

19.  Whilst the grounds of appeal on quantum is arguable, I am not satisfied that they are strong.

Appeal being rendered nugatory if no stay is granted.

20.  An appeal being rendered nugatory does not mean that without a stay, the appellant faces financial consequences or the loss of all its property. Demonstrating that the failure to grant a stay would have a serious deleterious effect is enough: Star Play, at §9(4).

21.  The Court does not just look at the means of the appellant but also of those behind him who have an interest in the appeal, such as its backers and those who have been funding the litigation or, in the case of a company, its shareholders and directors: First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd [2020] HKCFI 2536, §9, DHCJ To.

22.  This principle was not overturned on appeal. The Court of Appeal held that all the circumstances of the case have to be taken into account. In a case where the defendants were clearly funded by someone with means (say by incurring substantial costs with the instruction of leading and junior counsel in interlocutory applications), this must be a relevant circumstances in assessing whether the appeal would be stifled if discretion is exercised in one manner or another: [2021] HKCA 864, §9, Lam VP (as he then was).

23.  The judgment sum, together with interest calculated up to the end of February 2022 amounts to about RMB 6.97 million.

24.  The Defendant contends that:

(1)  Execution of the judgment would put the Defendant in a position of financial ruin from which it would not be able to recover. It does not at present have sufficient available assets to pay and is unable to raise sufficient funding to pay the judgment sum. It is unable to pay the judgment sum into court pending the appeal. In the absence of an unconditional stay, the Defendant faces the prospect of being put into liquidation.

(2)  There is an appreciable risk of recovery if the judgment sum is now paid to the Plaintiffs, which is a company incorporated in Mainland China and both Plaintiffs are owned by a Taiwanese company.

25.  The first contention is untenable because:

(1)  The financial reports of the Defendant for the years ended 31 December 2018 to 2022 show:

Year	Current assets	Net equity	Amount due to immediate holding company
2018	about US$1.5 million	(US$0.38 million)	(US$1.83 million)
2019	about US$ 1.4 million	(US$0.51 million)	(US$1.87 million)
2020	about US$0.9 million	(US$0.52 million)	(US$1.48 million)

(2)  Note 9 of the 2020 Report shows that the amounts due to the holding company, are “unsecured, interest free and repayable on demand”.

(3)  As rightly pointed out by the Plaintiffs, such liabilities are a convenient way of reducing assets from positive to negative to show a case of impecuniosity.

(4)  Subsequent to handing down of the Judgment, the Defendant repaid US$391,764 and US$ 62,000 to the parent company; and US$360,039 to its solicitors as “costs on account and miscellaneous legal fees”. These sums could have been applied, at least in part, to settle the judgment debt. The Defendant has been able to provide security for costs of the appeal said to be from its own resources. There is no suggestion that the holding company or other backers of the Defendant are unwilling or unable to provide loans that are “unsecured, interest free and repayable on demand” to settle the judgment debt.

26.  Further, the Defendant is a foreign corporation with no assets in Hong Kong. If stay of execution is granted but the appeal is dismissed, the Plaintiffs will face an empty judgment.

27.  With regard to the second contention, the Plaintiffs have offered to accept payment of the judgment sum into Court. That would allay any concerns of the Defendant as to risk of discovery. That offer is reasonable but is not accepted.

Balance of justice

28.  As the Defendant does not have strong grounds of appeal and it has not demonstrated that the appeal would be rendered nugatory without a stay, I refuse to grant an order for stay of execution of the Judgment.

Conclusion and Costs

29.  The summons of the Defendant is dismissed. On a nisi basis, costs should follow the event and be borne by the Defendant, summarily assessed in the sum of $100,000.

30.  I thank counsel for their assistance.