HAPPY DYNASTY LTD. v. WAI KEE (ZENS) CONSTRUCTION & TRANSPORTATION CO. LTD. and DYNO WESFARMERS (HK) LTD. (Third Party)

1995, No.CON 41

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(Construction List)

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J U D G M E N T

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A. STAY OF EXECUTION OF THE JUDGMENT AGAINST THE 1ST AND 3RD DEFENDANTS

B. PAYMENT OUT OF THE MONEY TO THE PLAINTIFF FOR THE JUDGMENT DEBT

1. On 22 January 1998 this Court delivered judgment in the case herein and awarded to the Plaintiff against the 1st and 3rd Defendants ("the Defendants") the following amounts of payments due and owing to the Plaintiff as follows :

(1) Underpayment :	$1,148,412.00
(2) Underpayment of Invoice 23 : (rounded up to)	$3,000.00
(3) Utility trench blasting : (agreed)	$411,180.00
(4) Prolongation :	$7,357,000.00
Total :	$8,919,592.001 ==============

There was also an order that interests shall run on the aforesaid total judgment sum from the date of the writ at judgment rate until the date of judgment.

2. Thereafter there are various applications and summonses taken before Masters and Judge in Chambers concerning stay of execution, security for the Plaintiff's judgment, garnishee orders, and payments into Court. I would not go into detail of this chronology of events. Suffice to say that before me there are two summonses, namely :

(1) There is a summons by the Defendants for say of execution on the outstanding judgment debt pending appeal to the Court of Appeal.

(2) A summons by the Plaintiff that the total sum of money paid into Court shall be paid to the Plaintiff forthwith in satisfaction of the judgment debt and they are, as certified by the Judiciary Accountant, as follows :

(a) Total payment into Court made by Defendants' solicitors on 21.3.97 by way of satisfaction of the Plaintiff's claim.	HK$2,780,000.00
(b) Further payment into Court made by the said solicitors on 2.3.97.	HK$6,139,592.00
(c) Last payment into Court made by the said solicitors on 7.3.98.	HK$2,596,508.00
(d) Accrued interest on (a) up to and including 31.3.98.	HK$320,389.00
(e) Accrued interest on (b) up to and including 31.3.98.	HK$34,650.00
(f) Accrued interest on (c) up to and including 31.3.98.	HK$12,126.00
LESS
(g) Payment out to Messrs Drivers for the Plaintiff pursuant to a Court Order by consent dated 24.3.98	(HK$534,201.08)
	HK$11,349,063.92 ================

Item (g) payment out by consent was in respect of Items (2) and (4) of the Judgment debt together with interests.

3. I have decided to hear the Defendants' summons first, since if they could succeed in their application for a stay of execution, the consequence would be that the Plaintiff would not be entitled to any payment out to them forthwith.

4. The law on the stay of execution of a judgment is very clear. It has been succinctly summarised in the case of Winchester Cigarette Machinery Ltd v. Payne and Another (No.2) 1993 Times Law Report, 647. It is stated in the headnote as follows :

"In granting a stay of execution of a money judgment a court in the exercise of its unfettered discretion had to start with the assumption that a person should not be stopped from exercising the necessary court procedures in order to have the benefit of the money judgment made in his favour, even though an appeal was pending."

In the short judgment of the Court of Appeal in England, it has been said as follows :

" LORD JUSTICE RALPH GIBSON said that in recent cases it had been said that the practice of the court had moved on from the principle that the only ground for a stay was the reasonable probability that damages and costs paid would not be repaid if the appeal succeeded.

Those cases held that the approach of the court now was a matter of common sense and a balance of advantage.

But in holding any such balance of advantage, full and proper weight had to be given by the court to the starting principle that there had to be a good reason for depriving a plaintiff from obtaining the fruits of a judgment.

In the present case no good or sufficient reason had been made out for the grant of a stay.

LORD JUSTICE MCCOWAN agreed.

LORD JUSTICE HOBHOUSE, agreeing, said that since a court had an unfettered discretion no authority could lay down rules but give guidance only.

By the terms of Order 59, rule 13 of the Rules of the Supreme Court an appeal did not operate as a stay on the order appealed against. The appellant had to show some special circumstance which took the case out of the ordinary."

5. In other words, the general rule is there should not be any stay of execution unless the payer, i.e. the Defendants herein, has demonstrated that there is a good reason or special circumstance that the stay should be granted. One of the good or sufficient reasons would be that the appeal would be rendered nugatory if the Defendants are successful in the appeal in that the money paid to the payee, i.e. the Plaintiff herein, would not be likely to be recoverable. This burden of proof is on the payer. Each case should therefore be decided according to its own matrix of facts.

6. In this respect, the Defendants put before the Court an old affidavit made by the Third Party in the action herein when it was joined by the Plaintiff in the counterclaim of the Defendants. That affidavit was used previously for an application for security of the Third Party's costs vis-à-vis the Plaintiff's Third Party action. However, the papers disclosed in that affidavit dated 27 August 1997 covered only the financial statements of the Plaintiff as at 31 December 1995. Mr Law for the Plaintiff in his second affidavit went at length as to those accounts receivable by the Plaintiff by exhibiting the financial statement for the period from 1 January to 30 June 1997. Mr Law also set out substantial amounts of monies received from the accounts receivable thereafter. In any event, that application of the aforesaid Third Party was eventually abandoned.²

7. On 24 February 1998, Mr Derek Zen of both the 1st and 3rd Defendants put in an affirmation to the effect that the Plaintiff's unaudited balance sheet shows that -

(1) By 11 December 1996 there was a loss of $1.229 million.

(2) As at 30 June 1997, a profit of $4.934 million.

(3) Plaintiff's fixed assets were $378,395 and $953,964.

(4) The paid-up capital was $1,000 only.

(5) Mr Law's explanation in his previous affidavit about $7.951 million of accounts receivable within the 30 June 1997 balance sheet.

8. In reply Mr Law in his third affidavit dated 28 March 1998 contended that the management account of the Plaintiff for the year ended 31 December 1997 shows that the Plaintiff's finances are in a healthy position. The business of the Plaintiff has expanded at a very fast rate, having more than doubled. The Plaintiff's profit margin before an extraordinary item was approximately 20% more. (The extraordinary item is the legal and professional fees in respect of the action herein in the sum of $5.087 million. I shall come back to this amount later on.)

9. Mr Zen in his aforesaid affirmation went on to say that he has made enquiry at one Dragages et Travaux Publics (HK) Limited which revealed that the most significant project on which the Plaintiff has recently worked on, namely the Route 3 Project, was finished in November 1997. That is hearsay evidence without disclosing the actual source.

10. Mr Law in reply, in his affidavit, stated that he had spoken to the project director Mr C. Perrier of the aforesaid company on 26 March 1998 who said that according to him he had not spoken to Mr Zen or anyone from Mr Zen's company although his company had an employment of 1,000 people and he could not guarantee that nobody had spoken to Mr Zen. In any event, the project was completed on 31 October 1997. It was a project which provided the Plaintiff in excess of $20 million in revenue, but it was not the most significant contract for the Plaintiff as would be apparent hereinbelow.

11. Again, Mr Zen in his aforesaid affirmation said he had been informed by his fellow director Mr David Gem and verily believed that he i.e. Mr Gem had made enquiries from Messrs Kumagai Gumi who had informed Mr Gem that the Plaintiff only had minimal works remaining on the Quarry Bay Project to about 5% of the Plaintiff's works scope. This is of course hearsay upon hearsay and the actual source of the information again has not been disclosed, i.e. which person of that company - a worse situation than the previous information obtained from the previous company.

12. Mr Law in his third affidavit replied that a Mr Iwashita, the project manager of the Quarry Bay improvement work for Kumagai Gumi said he did not know Mr Gem at all. To his knowledge, after enquiry at its head-office, nobody from Kumagai Gumi had spoken to Mr Gem. Contrary to Mr Zen's assertion, the Plaintiff's contract at Quarry Bay with Kumagai Gumi was actually completed in October 1997. The value of the contract was nearly twice of the previous contract, i.e. in the sum of $38 million.

13. Then Mr Zen in his aforesaid affirmation said that the Plaintiff has very limited opportunities to carry out drilling and blasting works and this scarcity has existed for at least the past six months. For the period over the past six to twelve months, to the best of his knowledge, none of the drilling and blasting works had been awarded to the Plaintiff. He said that he had also made an informal enquiry from the Mines Division of the Hong Kong SAR and had been informed that the Plaintiff is not presently the holder of any active blasting permit. Mr Law in his aforesaid third affidavit replied that he had spoken to Mr Siu of the Mines Department and corresponded with him by letter. He was informed orally and in writing that the Mines Department would not disclose any information relating to blasting licences or the status of blast licence holders on Hong Kong civil projects to non-related parties.

14. Further, Mr Law said that Mr Zen did not disclose the source of his information concerning opportunities to carry out drilling and blasting works. Specifically, he had not made reference to work available from private contracts as opposed to Government Contracts. The Plaintiff has been working continuously for the MTRC, particularly at Quarry Bay since October 1997. Nearly $3 million had been generated in the revenue for the Plaintiff since October 1997.

15. Mr Law further said that Mr Zen believed that the Plaintiff was only a drilling and blasting contractor. While that is the major activity of the Plaintiff, Mr Law said there are many activities of the Plaintiff such as underground excavation, rock excavation, project evaluation and technical guidance, blasting assessment and licensing, environmental impact assessment, vibration control assessments and other blasting consultancy work. Examples of rock excavation recently carried out by the Plaintiff are the quarry improvement with Kumagui under a MTRC contract and with MTRC directly under another MTRC contract. Consultancy work and supervision work are other examples of the Plaintiff's other works for China Road and Bridge on Sau Mau Ping Housing Developments and Hyder Consultancy Limited for the development of the new MTRC project in Yau Tong which is part of the MTRC Junk Bay Development.

16. It can be seen that I went at length as to what the parties say on affirmations/affidavits to demonstrate that the distorted version put forward by Mr Zen was under heavy challenge of Mr Law with supporting documents. Further, Mr Law received a letter on 30 March from the Superintendent of Mines, Geotechnical Engineering's Office of the Civil Engineering Department. The Department stated that it had not disclosed information, either formally or informally, to other companies concerning the blasting activities of Happy Dynasty, the Plaintiff.

17. In short, I am afraid the Defendants have failed to satisfy me on the balance of probability that those sums of monies in Court when paid to the Plaintiff, which according to my judgment it was entitled to, would be unlikely to be recoverable should they succeed in the appeal. There is no special circumstance either to compel me to order a stay of execution instead.

18. It has been said that :

"On an application for a stay of execution pending appeal, argument concerning the substance of the appeal is necessarily limited and the court will not generally speculate upon the appellant's prospect of success"³.

I cannot agree more to such a statement since it has always been an unenviable task with embarrassment to Counsel to argue before the same judge that there are merits of appeal. Counsel would then have an unenviable task to demonstrate to the same court from which the appellant is going to appeal, that there is some chance of success in the Court of Appeal. If necessary, the lower Court should also be spared of the other unenviable task of assessing the prospect of success of such an appeal from his own Court!

19. On the other hand, in the same passage, the learned author went on to say :

"However, the court will need to make some preliminary assessment about whether there is an arguable ground of appeal and the appellant cannot expect a stay to be granted without showing that one exists. Where an appeal can be brought without leave, this requirement protects the position of a judgment creditor if it is plain that the appeal has been commenced without any real prospect of success and simply in the hope of avoiding an immediate execution upon the judgment."

In this limited respect, I would only venture to mention one of the grounds put forward orally before me by Counsel for the Defendants which is relevant to one sum of judgment debt.

20. It can be seen from the conclusion of my judgment as stated at the outside of this judgment that the Plaintiff was adjudged to be entitled to the first item of underpayment of $1.148 million odd. This payment was calculated at the old rate of $12.69 per cu.ft. of 90 odd K ft³ of rocks blasted from the expiration of the original 13 months' contract period up to May 1995, i.e. between the end of November 1993 to 28 May 1995⁴. After the 13 months period, Wai Kee, the 1st Defendant made a clear promise to the plaintiff that they would include delay to the Plaintiff's work in their claim to their Main Contractor LEJV (see page 4 of the main judgment). At the trial and in the final submission, the Defendants were saying that the contract rate of $12.69 was applicable for the whole contract period throughout and the additional sum of money was payable to the Plaintiff for the delay period amounting to the first item, i.e. $1.148,412. It was also the submission of the Plaintiff that that was the only additional sum apart from Items 2 and 3 in the Conclusion of the Judgment that was unarguably payable. It is quite surprising, to say the least, that Mr Harris submitted to me that it is conceivable in his submission that the Court of Appeal might consider that the contract would only run up to 13 months. Thereafter, since there was no provision for any rate as submitted by the Plaintiff, therefore no money would be payable for those rocks excavated in the delayed or prolonged period since there is no claim for prolongation but quantum merit only.

21. This is what I would consider to be an item which would fall squarely into this category that there is no real prospect of success in this ground of appeal and it was simply put forward in the hope of avoiding an immediate execution upon the judgment.

22. In other words, the application for stay of execution to my mind can only be concerned with the last item of quantum meruit which I have in my judgment considered that it should be assessed as if it was a prolongation case. This came up to $7.357 million, together with interests.

23. But by reason of the aforesaid matters the Defendants has failed to satisfy me that their appeal would be rendered nugatory because the money paid to the Plaintiff would be unlikely to be recoverable in case they are successful in the appeal or for any part thereof.

24. Three further things are also of some significance. First, Mr Derek Zen, under cross-examination at Day 26 on 20 October 1997, at pages 27-28 of the transcript said that he was prepared to pay whatever Mr Law's company, Happy Dynasty, shown was a reasonable sum reflecting the prolongation of the work. When asked of that question, he said he was prepared to pay Happy Dynasty a reasonable sum as to be determined by the Court and he also agreed that that would be on the basis of prolongation determined by the Court.

25. Secondly, it is also of some significance that the fact that the Defendants were paid by the main contractor LEJV the sum of $20 million for prolongation after the completion of the subcontract of the Defendant with LEJV. This fact had not been disclosed to the Plaintiff until at the trial under cross-examination. The Defendants contended that it was irrelevant. This was rejected by the Court in the main judgment. The fact that the Defendants were already paid by their Main Contractor, albeit by settlement, long time ago, is a factor in favour of the Plaintiff in these applications before me.

26. Finally, as revealed by the financial statements, the Plaintiff has already spent more than $5 million in order to recover the judgment sum of $8.9 million, together with interests up to nearly $11 million. I am conscious of the fact that cash-flow has been described as the life-blood of contractors, albeit in a different context. It would be unjust and inequitable to deprive them of this fruit of litigation. Otherwise how could this still healthy company go on when deprived of nearly $16m. In other words how could David fight against Goliath when you even deprived him of those 5 pieces of stone specifically chosen by him for the fight?

27. In conclusion I cannot say that the Defendants have demonstrated to my satisfaction that there should be a stay of execution on the judgment sum. Accordingly, I would dismiss the Defendants' summons dated 24 February 1998 for stay of execution pending appeal. I would order in terms of the summons of the Plaintiff dated 19 March 1998 that there shall be an order for payment out of the total sum of $8,736,100 paid into Court together with all interests thereon for the benefit of the Plaintiff up to the date of payment out. I was told by counsel the agreed sum payable to the Plaintiff including interest up to 2 April 1998 is $10,990,173.74 only, i.e. there was a slight overpayment into Court. Thus this is not a case where the Plaintiff had the fear that the Defendants would not pay the money in the end since all outstanding money has already been paid into Court. In other words, it is not a case where the Defendants have not shown their genuine intention to pay as they have on their part paid the same into Court already. It is a case whether there are any special circumstances or good reasons for a stay of execution for some further time pending appeal. My answer to this question is in the negative.

28. I shall now hear counsel on incidental matters as indicated by them in the hearing.

1 See page 24 of the said judgment on 22 January 1998.

2 There is a separate Judgment delivered in respect of the Third Party proceedings on 24 January, 1998.

3 See Halsbury's Laws of Australia, para.[325-11910]

4 See page 2 of the main judgment.