TOECA NATIONAL RESOURCES B.V. v. BARON CAPITAL LTD AND ANOTHER

CACV 55/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 55 OF 2013

(ON APPEAL FROM HCA NO. 1913 OF 2009)

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REASONS FOR DECISION

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Hon Cheung JA (giving decision of the Court) :

Stay of execution pending appeal

1.  At the conclusion of the hearing we dismissed the defendants’ application for stay of execution pending their appeal against the judgment of High Court Judge Mimmie Chan which will be heard in March 2014. We now give our reasons.

2.  The Judge on the conclusion of a lengthy trial ordered the 1^st defendant (‘Baron Capital’), and the 2^nd defendant (‘Wan’) as guarantor of Baron Capital, to pay to the plaintiff (‘Toeca’) the sum of HK$116,820,000, and interest in the sum of HK$1,947,000 as claimed by Toeca, and for the Placed Shares in Sino Resources Group Limited (‘the Company’) to be transferred to or to the order of Baron Capital upon payment, in accordance with the Placement Agreement.

3.  On 13 June 2013, the Judge, upon the defendants’ application granted a stay of execution of the judgment conditional upon the defendants within 21 days, pay into court, or otherwise provide a bank guarantee for the defendants’ payment of, 50% of the judgment sum of $118,767,000.00 ($116,820,000.00 plus interest of $1,947,000.00).

4.  The condition was not complied with by the defendants.  After lodging the appeal and the present application, the defendants applied to Yuen JA for an interim stay of the judgment.  It was refused.

The plaintiff’s claim

5.  Mr Benjamin Yu SC (together with Ms Kate Poon) as counsel for the defendants summarised the plaintiff’s case against the defendants :

(1)   The plaintiff was prepared to take up a placement of 118 million shares in the Company of which Hung Chen (who was the defendant in HCA 1683/2009) was the major shareholder.  At the time, Hung’s company had entered into an agreement to purchase a coal mine in Heilongjiang and Hung had agreed to sell this company to the Company.

(2)   Baron Capital was the placing agent appointed by the Company.  The placement was at a price of HK$0.99 per share.

(3)   The plaintiff paid $0.99 x 118 million to the Company in return for 118 million shares.

(4)   The plaintiff obtained from Hung an agreement (called ‘the Procurement Agreement’) whereby Hung granted to the plaintiff a put option, entitling the plaintiff to require Hung to procure the placing of all or any portion of the 118 million shares subscribed by the plaintiff at a minimum price of HK$0.99 within a period of three months.

(5)   The plaintiff also had an agreement with the defendants in terms of a Placing Agreement and a Supplemental Agreement whereby Baron Capital agreed to purchase or procure the purchase of such portion of the placed shares as notified by the plaintiff at a price of not less than $0.99.  An important provision in the Supplemental Agreement is that the Placing Agreement will not take effect unless and until the Procurement Agreement had been terminated in accordance with its terms, and written notice of termination is given to the defendants as soon as practicable.

(6)   On 9 April 2009, the plaintiff served a notice on Hung of the exercise of its option under the Procurement Agreement, requiring Hung to procure the placement of the 118 million shares.  In response, Hung denied liability, claiming he had no recollection of signing the documents, and alleging non est factum.

(7)   Since Hung failed to honour his obligation to procure the placing of the 118 million shares, the plaintiff terminated the Procurement Agreement by a written notice dated 14 July 2009 served on Hung.

(8)   The evidence was that at the same time when the notice of termination was served on Hung (i.e. 14 July 2009), the plaintiff’s solicitors (Messrs. Jones Day) had also prepared a draft notice to be served pursuant to the Placing Agreement and Supplemental Agreement (sub. para. (5) above) (‘the said notice’).

(9)   The plaintiff only actually served the said notice on the defendants on 4 August 2009.  

(10)  By this time the trading of the shares had been suspended which rendered Baron Capital’s placing of the shares very difficult.

The principles

6.  In general the Court in deciding whether to stay the execution of a judgment or not will consider factors such as 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.  An appeal being rendered nugatory does not mean in all cases that without a stay, the appellant faces financial ruin or the loss of all his property.  Demonstrating that the failure to grant a stay would have a serious deleterious effect is enough.  While it is impractical or undesirable to go deeply into the merits and strength of an appeal, the Court must nevertheless form a preliminary view.  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. In this connection, the requisite strength of the appeal must be such that the court takes the view that ‘something has grievously gone wrong with the process of law in the court below’.  In other words, if the party applying for a stay of execution can demonstrate that it is almost bound to succeed in the appeal, this by itself will almost invariably tilt the balance in favour of granting a stay.  On the other hand, if all that can be demonstrated is that the appeal is arguable or even that good arguments exist, something more needs to be shown by the appellant in order to obtain a stay of execution.  See Star Play Development Ltd. v. Bess Fashion Management Co. Ltd. [2007] 5 HKC 84, Wenden Engineering Service Co Ltd v Lee Shing Yue Construction Co Ltd (unreported, HCCT 90/1999, 17 July 2002 and World Trade Centre Group Ltd. v. Resourceful River Ltd. (CACV 70/1993, 12 May 1993, unreported).

‘As soon as practicable’

7.  The Judge held that the said notice was served by the plaintiff on the defendants ‘as soon as practicable’.

8.  The correctness of this decision formed the first ground of appeal by the defendants and was relied upon by the defendants in showing that they have such a high chance of success in the appeal that execution of the judgment should be stayed. 

9.  Mr Yu argued that the Judge’s decision was based on her view that,

‘ 115. ......If the service of the Notice was put into practice on 14 July 2009, it might not only have adverse and disrupting effects on Hung’s settlement of Toeca’s claims made against him, but would trigger the liabilities of Baron Capital and Wan under the Placing Agreement, such that their interests might not be aligned with Toeca’s.’

10.  Mr Yu submitted that this view was not supported by the contemporaneous email exchange between the parties.  He submitted the Judge’s decision is not simply a finding of fact but rather an inference from the facts (in the nature of the email exchange and without the contemporaneous oral discussion of the parties which the Judge had ruled inadmissible) which this Court is in as good a position to evaluate as a trial judge by reference to Ting Kwok Keung v. Tam Dick Yuen (2002) 5 HKCFAR 336.

11.  Our preliminary view of the merits of the appeal does not support Mr Yu’s contention that the defendants have such a strong ground of appeal on this issue that a stay ought to be granted as a matter of justice.  The whole of circumstances of the case have to be considered and we say that this point is no more than a reasonably arguable point.  Matters to which the Judge has considered included :

(a)   the judgment of Dedman v British Building and Engineering Appliances Ltd [1974] 1 WLR 171, 179 where it was said that the word ‘practical’ is an ordinary English word of great flexibility and indicates one must be satisfied with less than perfection;

(b)   after Toeca had exercised its option in April 2009 under the Procurement Agreement (para. 5(6) above), Wan and Baron Capital had on various occasions persuaded Toeca to take action against Hung, and had assured Toeca that it was in Toeca’s best interests to enforce its rights under the put option against Hung as the primary target, rather than to pursue Wan and Baron Capital, as their interests were aligned with Toeca’s.

12.  We do not consider that the Judge must have been wrong in so approaching the issue.

No assets for execution

13.  In reality, there are little assets, based on the disclosure by Mr Wan for the plaintiff to execute. 

Financial ruin

14.  The defendants’ contention in its stark form is that they will face financial ruins if the execution is not stayed in that statutory demands have been served on both of them and they faced the real likelihood of bankruptcy and being wound up.  Baron Capital suffered a substantial fall in its net asset value from $18.8 million to $0.5 million in less than five years.  Mr Wan who was a wealthy man said his fortunes had plummeted over a period of five years from $137.75 million in 2008 to about $2.65 million in recent times.  He said he suffered huge loss in gambling to the tune of $70 million.  He is now retired after he transferred his shares in Baron Capital to his daughter.  Mr Wan maintained the transfer was an arm’s length transaction and the transfer was a result of his ill health.

15.  In our view the criticism on the quality on Mr Wan’s financial condition is a valid one.  While approval for the transfer had been given by the Securities and Futures Commission, an indication that Mr Wan still asserts his control over Baron Capital is supported by the fact that he remains to be its Chairman and Licensed Responsible Officer.  The daughter, despite taking control of Baron Capital, does not even hold the post of a director in that company.

16.  As Mr Anderson Chow SC (together with Ms Janet Ho), counsel for the plaintiff observed, although the defendants repeatedly emphasized their alleged impecuniousity, that has not prevented them from pursuing the stay application before the Judge, the interim stay application before Yuen JA or the present stay application, and there is no suggestion - let alone proof - that they would not have financial means to pursue the appeal if the stay is not granted.  On their own case, Baron Capital is now a company owned by Mr Wan’s daughter, and he has since his ‘retirement’ relied ‘on [his daughter] to support [his] living expenses and substantial expenditures’.  There is no suggestion that the daughter, who is ‘married to a reasonably well off husband’ and ‘a career woman’ at the helm of the Baron Group, is unable or unwilling to finance the appeal.

17.  This Court has held in Nanyang Commercial Bank Ltd & Another v Wong & Another (unreported Chinese judgment, CACV 33/2013, 15 July 2013) and Tsui Po Hing & Another v SK Kaken Co Ltd & Another (unreported, CACV 167/2009, 26 March 2010) that the trustee in bankruptcy may continue and adopt the appeal and a meritorious appeal would not be stifled by reason of a bankruptcy order. The same reasoning applies to a company which is ordered to be wound up.

18.  Mr Yu referred to Linotype-Hell Finance Ltd. v Baker [1993] 1 WLR 321 where Staughton LJ held that :

‘ Now the defendant is appealing as of right and seeks a stay of execution. In paragraph 59/13/1 of The Supreme Court Practice 1991, p. 957 there is a large number of nineteenth-century cases cited as to when there should be a stay of execution pending an appeal. At a brief glance they do not seem to me to reflect the current practice in this court; and I would have thought it was much to be desired that all the nineteenth-century cases should be put on one side and that one should concentrate on the current practice. It seems to me that, if a defendant can say that without a stay of execution he will be ruined and that he has an appeal which has some prospect of success, that is a legitimate ground for granting a stay of execution. The passage quoted in paragraph 59/13/1 of The Supreme Court Practice 1991 from Atkins v. Great Western Railway Co. (1886) 2 T.L.R. 400

“As a general rule the only ground for a stay of execution is an affidavit showing that if the damages and costs were paid there is no reasonable probability of getting them back if the appeal succeeds,”

seems to be far too stringent a test today.’

19.  In our view based on the current jurisdiction, the likelihood of financial ruin of or the deleterious effect on the defendants is one of the relevant factors to be taken into account in the balancing exercise together with the merits of the appeal.  But as Mr Chow submitted, a stigma has already been attached to Mr Wan when the judgment was given against him.  Mr Wan is now a retired person and this is not a situation where the business activities of an active businessman will be disrupted by the making of a bankruptcy order which may have a real deleterious effect on him. In any event, no winding up or bankruptcy proceedings have yet been commenced against the defendants.

Conditional stay?

20.  Mr Yu urged upon us that it is only a matter of about five months before the appeal is to be heard and the balancing exercise should tilt in favour of holding the execution for this short period of time.  To this, we had repeatedly raised specifically with Mr Yu about the issue of a conditional stay and whether the defendants were prepared to comply with the condition imposed by the Judge if we were to extend the time for compliance.  The response was that the condition was impossible for the defendants to fulfill and at most only about $2 million could be paid into Court.  In our view this is a derisory figure compared to the judgment sum and is insufficient to form the basis of a conditional stay.

Conclusion

21.  All in all we are not satisfied that a proper case had been made out for the stay.  Accordingly the application was refused with costs to the plaintiff.

22.  The plaintiff had issued a summons to strike out the defendants’ stay application which was not proceeded by the plaintiff.  No order was made on the plaintiff’s summons to strike out the application except the costs of and related to the summons be to the defendants.