EASY FORTUNE PROPERTY LTD v. YUNG CHUN HIM

CACV 109/2024, [2024] HKCA 680

On Appeal From [2024] HKCFI 615

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 109 OF 2024

(ON APPEAL FROM HCA NO. 1484 OF 2014)

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DECISION

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Hon Cheung JA (giving the Decision of the Court) :

I.  The applications

1.  There are before the Court the following two applications :

1)  the defendant’s application by summons filed on 22 April 2024 supported by his affirmation of even date for a stay of execution of the judgment of Deputy High Court Judge KC Chan (‘the Judge’) dated 29 February 2024 (‘the 2024 Judgment’) pending appeal; and

2)  the plaintiff’s application by summons filed on 16 May 2024 supported by the 6^th Affirmation of Wong Man Ho Anthony of even date for retrospective leave to file and serve its Respondent’s Notice dated 16 April 2024. 

II.  Background

2.  The plaintiff is a licensed moneylender and the defendant is the borrower of a $5,000,000 loan from the plaintiff (‘the Loan’).  The plaintiff’s claim is for repayment of the outstanding principal of the Loan together with interest, and an order for possession of the defendant’s property in Parc Oasis (‘the Property’), which was charged as security for the Loan.

3.  The defendant has, since 24 February 2014, defaulted in his payment obligations.  On 20 February 2014, a few days before he defaulted in payment, the defendant petitioned for his own bankruptcy.  On 17 March 2014, the plaintiff issued a demand letter to the defendant for repayment of the Loan.  On 1 April 2014, the defendant was adjudged bankrupt.

4.  With the leave of the Court, the plaintiff commenced the present proceedings against the defendant on 1 August 2014.  By summons issued on 30 September 2015, the plaintiff applied to strike out the defendant’s Defence, and to enter judgment against the defendant on its monetary claim together with an order for possession of the Property.  On the assumption that all the facts pleaded in the defendant’s case were true, Mr Recorder Pow SC (‘Recorder’) by his judgment dated 12 August 2016 (‘2016 Judgment’) made the following orders :

1)  Judgment be entered for the plaintiff in the sum of $4.16 million with interest at judgment rate from the date of the order (i.e. 12 August 2016) until payment;

2)  The defendant’s defence be struck out to the extent that it seeks to resist payment of the sum of $4.16 million;

3)  Leave to the defendant to defend the plaintiff’s claim over and above the sum of $4.16 million; and

4)  The defendant shall within 28 days deliver up vacant possession of the Property to the plaintiff.

5.  The defendant appealed against the 2016 Judgment.  This Court in its judgment dated 27 September 2019 ([2019] HKCA 1055) (‘2019 CA Judgment’) allowed the appeal in respect of the order for possession :

‘ 67. The issue of whether it is inequitable not to enforce the security, however, merits further considerations. It would appear from [48] and [49] of the judgment (see [60] above) that because it was inequitable not to allow the plaintiff to recover from the defendant the reduced principal amount of the loan, it followed that it would be inequitable not to enforce the security to the same limited extent. No separate consideration has been given to whether the plaintiff should be allowed to enforce the security in light of the admitted breach of section 18, the arguable contraventions of sections 22(1)(c) and 27(3) and the arguable attempt to disguise the charging of default interest. In our view, in the present context of a striking out application, given the multiple admitted or arguable breaches of the MLO and the Judge’s finding that there was arguably a deliberate and sophisticated attempt to evade the statutory controls, it is arguable that it would not be inequitable to disallow the plaintiff to enforce the security generated from the transaction. Ground (6) should therefore be upheld.’

6.  This Court set aside the Recorder’s order that the defendant shall deliver up to the plaintiff vacant possession of the Property and granted leave to the defendant to defend the plaintiff’s claim for an order for possession of the Property, in addition to the leave already given by the Recorder to defend any further claim by the plaintiff over and above the sum of $4.16 million.

7.  The Judge then dealt with this outstanding issue.  The plaintiff had confirmed that it would not pursue any claim over and above $4.16 million.  The Judge held that it was not inequitable to enforce the legal charge up to the amount of $4.16 million with interest at judgment rate from 12 August 2016 until payment and with costs of the action, after taking into account the following :

1)  That $5,000,000 was actually lent to and received by the defendant, the majority of which was used to discharge two earlier loans and securities.  The defendant thus did receive the actual use of it and benefitted therefrom;

2)  The defendant was an experienced banker and a sophisticated person.  He was fully aware of the terms in the Supplemental Agreement, 附加條款 (translation: Additional Terms), and 確認書 (translation: Confirmation Document), and their implications, even though those terms were not contained in the Memorandum. The contravention of section 18 of the MLO created no real prejudice to him;

3)  The defendant had had ample time to consider before deciding whether to enter into the loan arrangement;

4)  The ‘set-up charge’ of $40,000 the defendant paid in fact conferred real and substantial benefit to him;

5)  The plaintiff’s breaches were not intentional attempts to evade the various controls imposed by the MLO or to deceive or harm the defendant;

6)  The plaintiff paid the Government rent and rates of the Property and the defendant has been deriving benefit therefrom; and

7)  The plaintiff had (by its confirmation that it would not pursue any claim over and above $4.16 million) foregone part of the principal and a substantial interest a contractual rate.

8.  The Judge had considered the enforceability of the legal charge at [71]-[76] of the judgment by applying sections 18(3) and 22(2) of the MLO, and the applicable legal principles set out in [32] of the judgment.  The Judge had also dismissed the complaints made by the defendant, including, the Impropriety Complaint, the Unjustified Demand Complaint as well as the defendant’s allegations that the Loan was extortionate within the meaning of section 25 of the MLO, and that the $40,000 paid by him was a ‘set-up charge’ in breach of section 27 of the MLO.

9.  The Judge ordered :

1)  The legal charge dated 4 May 2012 (‘Legal Charge’) be enforceable by the plaintiff against the defendant up to the amount of $4,160,000 with interest at judgment rate from 12 August 2016 until full payment and with the costs of this action; and

2)  An order that the defendant do, within 28 days after service of the orders made in the judgment, deliver up to the plaintiff vacant possession of the Property.

10.  On 19 March 2024, the defendant filed a Notice of Appeal against the judgment, and also applied by summons to the Judge for a stay of execution of the orders made in the judgment.  The summons was heard and dismissed by the Judge on 9 April 2024.

III.  Legal principles applicable to a stay of execution

11.  The principles governing an application for a stay pending appeal are well-settled. For present purposes, the applicable principles are distilled from Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 per Ma J (as he then was) and summarized below :

1)  It is in the Court’s discretion whether or not to grant a stay.  It is, however, important to bear in mind that the starting point is Order 59, rule 13 of the RHC, which provides that :

‘ Except so far as the court below or the Court of Appeal or a single judge may otherwise direct –

(a)  an appeal shall not operate as a stay of execution or of proceedings under the decision of the court below; …’

2)  A stay of execution will not be ordered unless the defendant can justify a stay, and the practice of the Court is that justification can be demonstrated only if good reasons exist;

3)  Good reason can exist in a variety of forms, and include the merits of the appeal and whether the appeal will be rendered nugatory absent a stay;

4)  However exceptional the circumstances may be otherwise justifying a stay of execution, if the Court is not convinced that there exist arguable grounds of appeal, no stay will be granted.  The existence of an arguable appeal (that is, one with reasonable prospects of success) is the minimum requirement; and cannot by itself amount to sufficient reason to justify a stay;

5)  Where there is an arguable appeal, it is necessary for the appellant to provide additional reasons as to why a stay is justified.  The demonstration of an appeal being rendered nugatory is one example;

6)  It is important to stress that the Court must not at any stage forget the position of the successful party.  It is always relevant to consider the prejudice that would be caused to the successful party in the event a stay is granted, and if necessary, to impose conditions so as to minimise the prejudice caused to him; and

7)  Ultimately, the Court embarks on a balancing exercise and uses its common sense, but bearing in mind at all times the starting point that the successful party is not to be deprived of the fruits of his success.

IV.  The defendant’s grounds of appeal

12.  In this appeal, the defendant advanced two broad grounds of appeal in his Notice of Appeal.

13.  Firstly, the defendant avers that the Judge had wrongly exercised his discretion in holding that it is not inequitable to enforce the Legal Charge.  In particular :

1)  The Judge failed to consider or ignored the defendant’s complaint that the plaintiff had demanded an excessive amount of default interest totalling $1,158,794,52 (which was admitted by the plaintiff to have been wrong attributable to a mistake), which had caused the defendant great difficulties and financial ruin (i.e. the Unjustified Demand Complaint).  Further and/or alternatively, the Judge was wrong to find that this complaint was an exaggeration and had no substance.

2)  The Judge had erred in finding that the $40,000 paid by the defendant to FPF was for the payment of all legal fees in relation to the Loan and the Loan to be made by FPF.  The Recorder had found this $40,000 unlawful in accordance with section 27(3) of the MLO, and had held that it was to be set-off against the principal of $5,000,000.

3)  The Judge had erred in finding that there was negotiation between the defendant and the plaintiff on the Preferential Interest, such that the plaintiff agreed to give the defendant a grace period of five days as provided in the Preferential Interest Clause.

4)  The Judge had adopted a narrow view approach and erred in rejecting the defendant’s evidence or case that a binding oral agreement had already been reached between the defendant and Chan (or her company) over telephone in April 2012, prior to the signing of the agreements for the Loan.  As such, the Judge ought to have found in favour of the defendant in relation to the Impropriety Complaint.

5)  The Judge had erred in rejecting the defendant’s complaint and analysis at trial that there was a ‘split lender plot’.

6)  The Judge had erred in finding that the breaches of the MLO had occurred because the plaintiff had not been careful in complying with the MLO and were not intentional (and in particular, not intentional attempts on the plaintiff’s part to evade the various controls imposed by the MLO, or to flout or circumvent the MLO by hiding or misrepresenting certain provisions or liabilities to deceive or harm the borrower).  In particular :

(1)  The Judge had failed to provide a proper analysis and sufficient reasoning for his finding;

(2)  The Judge had erred in accepting the plaintiff’s explanation as to the Unjustified Demand Complaint, namely, that it was attributable to a mistake.  The Judge was wrong to have accepted Wong’s explanation in view of Wong’s experience;

(3)  There were multiple breaches of the MLO; and

(4)  It was contrary to the Recorder’s observations at [47] of the 2016 Judgment, which was that the defendant had an arguable case that there was a deliberate and sophisticated attempt on the part of the plaintiff to evade the various controls of the MLO.

14.  Secondly, the defendant avers that the Judge had erred in holding that the Loan was not an extortionate transaction within the meaning of section 25 of the MLO. Further and alternatively, the Judge had not provided sufficient analysis on this issue.

V.  Our View

15.  It is sufficient for us to say that the defendant has merely provided arguable grounds of appeal and it is necessary for him to provide good reasons as to why a stay is justified.

16.  The defendant contended that the Property is worth $8 million and the plaintiff is amply secured with the judgment of $4.16 million.  In terms of the value of the Property, the defendant merely provided copies of the online valuation of the Property by four local banks.  As the plaintiff submitted, given how the present litigation has dragged on since 2014, the judgment sum, legal costs and interest payments involved, the current state of the property market as well as the prospect of any forced sale reducing the value of the Property, it is doubtful that the Property is worth and can be sold for the value claimed by the defendant.  As a matter of fact, interest at judgment rate between 1 July 2016 and 1 July 2024 is not less than 8% per annum.  A rough calculation of the accrued interest (on simple interest basis) for the past eight years is about $2,660,000.  We do not regard the defendant’s contention to be a good reason for staying the execution of the 2024 judgment.  It must be borne in mind that the 2016 Judgment has all along been binding on the defendant in the form of a monetary judgment of $4.16 million and interest.  Taking the defendant’s case to its highest, even if the defendant were to succeed on appeal and the Legal Charge held unenforceable, the plaintiff is nevertheless an unsecured judgment creditor and entitled to enforce the judgment, including enforcing against the Property.  In this regard we note that the defendant has been made a bankrupt and there is no evidence before us as to his current financial position or means to satisfy the monetary judgment that has been outstanding since 2016.  Hence the argument that the execution of the 2024 Judgment with the plaintiff entering into possession of the Property may result in an irreversible situation just does not carry force in the context of this case.  For the same reason, there is no basis to say that the appeal will be rendered nugatory.

17.  We have further considered the prejudice that may cause to the plaintiff by the grant of any stay.  In particular :

1)  Save for the $800,000 in interest which it had received (but ordered by the Recorder to be appropriated as partial repayment of the principal of $4,960,000 reducing it to $4,160,000), the plaintiff (as a money lender) has already been deprived of the principal advanced to the defendant for a prolonged period of time;

2)  The defendant’s assertion that the plaintiff does not suffer prejudice from any delay since the 2016 Judgment had awarded interest at judgment rate from 12 August 2016 until payment, is wrongly premised on the assumption that this is all recoverable; and ignores the fact that the defendant has been made bankrupt, and there is no evidence before us as to the current financial means and position of the defendant;

3)  In light of the above, and in view of the volatility of property prices in Hong Kong, any further delay in the enforcement of the Legal Charge may result in substantial losses to the plaintiff.

VI.  Conclusion

18.  For all of the above reasons, we dismiss the defendant’s application for a stay of execution.

19.  The plaintiff has sought costs in relation to the defendant’s application.  In our view, there is no reason why costs should not follow the event.      We direct the plaintiff’s solicitors to lodge a statement of costs for summary assessment within seven days hereof, with leave to the defendant to respond to the items and amount claimed within seven days thereafter.  There will be a summary assessment on paper.

20.  We will grant leave to the plaintiff to file and serve its Respondent’s Notice dated 16 April 2024.  Service is dispensed with.  The costs of the plaintiff’s application will be to the defendant in the sum of $1,024.