DLA PIPER HONG KONG (a firm) v. CHINA PROPERTY DEVELOPMENT (HOLDINGS) LTD AND ANOTHER

FAMP No. 2 of 2010

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 2 OF 2010

(ON AN INTENDED APPEAL FROM CACV NO. 142 OF 2009)

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Between

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D E C I S I O N

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Mr Justice Chan PJ:

1.  This is an urgent application by the applicant (“Best China”) for a stay of the orders made by the Court of Appeal on 12 and 22 January 2010. The Court of Appeal ordered that the money ordered to be paid into court by Fung J in the sum of slightly over USD 6 millions be paid out to DLA Piper Hong Kong (“DLA”). It is anticipated that the same is likely to be released by DLA to the 1^st respondent (“China Property”). Hence this application.

2.  Best China and China Property had entered into an agreement dated 16 November 2007 (“the Sale Agreement”) for the sale by China Property to Best China at the consideration of the equivalent in USD of RMB 464,100,000 the entire share capital of a company which holds all the shares of a Mainland real estate company which in turn owns the development rights of a certain project. On completion, the entire consideration was to be paid into an Escrow Account. Pursuant to clause 3.3.2 of the Sale Agreement, 10% of the consideration was to stand as guarantee monies for China Property’s one year guarantee for certain contingent liability under the Sale Agreement. These monies (“the funds”) were to be kept by DLA as stakeholder under a stakeholder agreement contained in a Chinese letter of the same date. Under clause 3.6 of the Sale Agreement, Best China was obliged to send a notice to China Property on or before the expiry of the guarantee period stating the amount of contingent liability as the basis for making deductions. There was a dispute between the parties as to whether the contingent liability had accrued and materialized at the expiry of the guarantee period on 16 November 2008 and if so, how much it was after certain deductions were to be made. Apparently no notice had been served under clause 3.6. For the present purpose, it is not necessary to go into details of the dispute. Suffice it to say that the main issue in dispute appears to be focused on a construction of the Sale Agreement and the stakeholder agreement.

3.  Upon the claims being made by both Best China and China Property to the funds held by DLA as stakeholder, DLA interpleaded. On 26 May 2009, Fung J granted interpleader relief, ordering DLA to pay the funds plus interest into court.

4.  On 12 January 2010, the Court of Appeal (Tang VP and Cheung JA) reversed Fung J holding that on a construction of the two agreements, the funds should be paid to China Property upon the expiry of the guarantee period. On 18 January 2010, before the Court of Appeal handed down its reasons for judgment, Best China filed a Notice of intended application for leave to appeal to the Court of Final Appeal (what is usually called a Form A). The court’s written judgment was handed down on the following day, 19 January 2010. On 22 January 2010, Best China applied to the Court of Appeal to stay the order made by that court, without filing a formal notice of motion for leave to appeal. This application for stay was refused. Thereupon, DLA obtained an order from the court for the payment out of the money in court to them. As part of the reasons for refusing to stay the order, the Court of Appeal indicated that it was not arguable that leave should be granted. The reasons for that decision were handed down on 25 January 2010.

5.  The present application before me was issued on 22 January 2010. The Notice of Motion to the Court of Appeal for leave to appeal was filed yesterday, 28 January 2010. No return day has been given yet for that application.

6.  The point is taken as to whether I have the power to order an interim stay of execution. The Court has power under s.26 of the Hong Kong Court of Final Appeal Ordinance Cap 484 (“the Ordinance”) to grant a stay of execution. But such a power is restricted to cases where the judgment appealed from requires the appellant to pay money or perform a duty and is exercisable only when the Court is granting leave to appeal or subsequently. It is clear that the present application does not fall within s.26. Mr Chua Guan Hock, SC for the applicant accepts that.

7.  But Mr Chua submits that apart from s.26, the Court has inherent jurisdiction to grant an interim stay. He relies on the case of Secretary for Justice v To Kan Chi & others (2000) 3 HKCFAR 264. In that case, which was a dispute over funds standing in court in the name of a Taoist temple, the Secretary for Justice was appealing to the Court of Final Appeal and the appeal was due to be heard in a few months time. The Secretary sought to stay the order that the funds in court be paid out to that temple pending the determination of the appeal. The order obviously did not require any party to the action to pay money or perform any duty and hence s.26 did not apply. However, Bokhary PJ said at p. 266I:

“In my judgment, the Court of Final Appeal has inherent jurisdiction to grant a stay such as the one which the Secretary for Justice seeks. It has inherent jurisdiction to grant such a stay in order to protect its process by seeing to it that its judgment, if ultimately in favour of the Secretary for Justice, would not be rendered nugatory by a prior distribution of the contested funds.”

8.  The existence of such inherent jurisdiction was confirmed by Ribeiro PJ in Shanghai Tongji Science & Technology Industrial Company Limited v Casil Clearing Limited, FAMP No 2 of 2003 and Joint & Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd (2006) 9 HKCFAR 795. In the former case, the learned judge added in para. 10:

“However, it does not follow that there are no limits to the inherent jurisdiction or its discretionary exercise.”

9.  While the Court no doubt has inherent jurisdiction to grant a stay of execution pending an application for leave to appeal or an appeal, it must be borne in mind that the purpose of such a power is to preserve the subject matter of the appeal during the pendency of the appeal process so as to ensure that the process is not rendered futile and that the appellant would not be deprived of the fruit of his appeal should it turn out to be successful. But it is a prerequisite to the Court invoking this inherent jurisdiction that there must already be an application for leave to appeal or an appeal pending before this Court. I note that in the Shanghai Tongji case, although the appeal had not yet been filed in the Court of Final Appeal when the application for stay to this Court was made, since leave was already granted by the Court of Appeal as of right, it was a matter of formality for the proper Notice of Appeal to be lodged.

10.  Mr Chua also relies on s.46(2) of the Ordinance. He submits that the terms of that subsection, particularly the words “at any time” allow a single permanent judge to grant an interim stay even where there is no application for leave to appeal or appeal pending before the Court. He argues that if that were otherwise, this would deny the Court the jurisdiction to grant such a relief and may result in a lacuna to the prejudice of a party.

11.  With respect, I do not agree. Section 46 confers upon a single permanent judge the power to exercise certain powers of the Court in certain situations. Although “appeal” and “application for leave to appeal” are not defined in the Ordinance, however, a purposive construction of the section requires that such powers would only be exercisable in connection with a matter or business before the Court. After all, it is the power of the Court he is exercising. Any order or direction which he may make under s.46(2) must be incidental to an application for leave to appeal or an appeal, or of an interim nature in connection with or for the purpose of such application or appeal. Thus, “an application for leave to appeal or an appeal” must be a reference to an application or appeal before the Court of Final Appeal, and not the Court of Appeal or any other court, as contended by Mr Chua.

12.  As to the lacuna argument, the answer is that where the court which has dealt with a matter has given an order or judgment, the party who is aggrieved by that order or judgment and wishes to appeal against it should apply in the first place to that court for a stay of that order or judgment pending appeal. And where this has failed, that party should, if necessary, expedite any further step under the rules of court to protect his own interest, including applying for abridgement of time to do so, and try to avoid any lacuna which may work to his own detriment.

13.  In my view, the Court’s inherent jurisdiction is to protect its own process and to ensure that any order and judgment given according to that process is not rendered nugatory. But not until that process is engaged, it is difficult to see how the Court’s inherent jurisdiction can be invoked. Counsel has not been able to draw my attention to any authority which shows that this had been or can be done.

14.  In the present case, up to now, Best China’s application to the Court of Appeal filed only yesterday has not been listed for hearing. Under s.24 of the Ordinance, a party can only apply to this Court for leave to appeal after the Court of Appeal has refused to grant leave. I am well aware of the remarks made by the Court of Appeal on the chances of success in obtaining leave in its reasons for refusing to stay its order, including the arguments on “as of right”, and that it is most likely that leave to appeal to this Court would be refused. But the fact remains that there is as yet no pending application for leave to appeal or appeal before this Court.

15.  For the reasons which I have stated above, I do not think I have the power to entertain the present application for stay of execution. It is accordingly dismissed. In light of this conclusion, it would not be appropriate for me to comment on the merits of Best China’s application for leave to appeal, either on the as of right limb or the point of law of great general or public importance limb and I refrain from doing so.

[Arguments on costs]

16.  I would also order that Best China should pay China Property and DLA the costs of this application. It is proper for DLA to attend, having been served with this application.