CHINA CONSTRUCTION BANK (ASIA) CORPORATION LTD v. LI KA YUET AND ANOTHER

CACV 243/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 243 OF 2007

(ON APPEAL FROM HCMP 1858 OF 2006 )

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REASONS FOR JUDGMENT

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Hon.  Yuen JA:

1.  On 2 August 2007 I gave an order granting the 1^st- named Defendant a stay of execution pending appeal, with liberty to apply.  My reasons appear below.   

2.  The 1^st- named Defendant is a co-owner (together with his wife) of a property in North Point which had been mortgaged to the plaintiff bank. 

Registrar’s Order

3.  In Order 88 proceedings, the Registrar had on 30 January 2007 given an order in favour of the bank for a sum of $4.3 million with interest and costs assessed at $30,000, as well as an order that the Defendants deliver up vacant possession of the property within 28 days.  Paragraph 4 of the Registrar’s order also provided that upon the Defendants paying to the Plaintiff the money secured, the Plaintiff would redeliver possession of the property to the Defendants.

4.  The 1^st Defendant lodged an appeal to a judge.  Between the time of the Registrar’s order and the appeal to Deputy Judge Louis Chan, the 1st- named Defendant had found successive purchasers for the property at prices which would be adequate to cover the judgment debt plus interest.  He had obtained a number of stays of execution from the court but had not executed any agreements for sale and purchase after getting new offers.  As well as appealing the Registrar’s order, he also asked for a stay of execution.

5.  The plaintiff bank’s position was that it was not prepared to consent to a sale by the Defendants, although it was prepared itself to sell the property at that price. 

6.  As far as the other Defendant was concerned, apparently she has indicated that she would sign an agreement for sale of the property if the Plaintiff bank agreed to the sale and the 1st- named Defendant moved out of the property.

The judge’s order

7.  The application for stay before Deputy Judge Chan was made on the basis of an offer from a Mr Lau (supported by a Provisional Agreement for Sale and Purchase signed on his behalf and backed up by a cheque for a deposit of $200,000 drawn in favour of the 1st-named Defendant’s solicitors) at $4,768,000.  Under that Provisional Agreement (which has not been signed by the 1^st-named Defendant), the Formal Agreement was to be signed on 7 August 2007. 

8.  However the judge refused to stay execution of the Registrar’s order, holding that since the bank was willing to sell the property to the purchaser found by the 1st- named Defendant, he saw no reason to stay execution of the Registrar’s order for possession and for an order of sale.       

Appeal

9.  The 1st- named Defendant has lodged an appeal against Deputy Judge Chan’s order.  In his Notice of Appeal, he points to the fact that a purchaser would be unlikely to be prepared to buy the property from the bank at the same price as it is generally known that mortgagee sales fetch a lower price in the market.  If the bank were to obtain a lower price such that some money remains owing on the judgment debt, then he would suffer detriment in having to pay the bank the difference still owed.  In any event even if the proceeds were enough to discharge the debt, a mortgagee sale would still mean that he would recoup less by way of his equity in the property. 

10.  In his affirmation he also deposed that on 25 July 2007 the Plaintiff bank told him that it would agree to the Defendants’ sale of the property if the proceeds were adequate to cover the debt owed.  Although the affirmation was not served on the Plaintiff, a copy was provided to its lawyer at the hearing before me and the Plaintiff has indicated that it did not need to produce any evidence in reply.

Application for stay pending appeal

11.  The 1st- named Defendant applied for a stay pending appeal of execution of the order for possession and fieri facias (and it appears from the 1^st-named Defendant’s submissions that he meant to include also the order for sale).

12.  Apart from Mr Lau’s offer exhibited to his affirmation, the 1^st-named Defendant produced at the hearing before me a new offer from a Mr Phu and Ms Lai (supported by a Provisional Agreement for Sale and Purchase signed by them and backed up by a cheque for a deposit of $150,000 drawn in favour of the 1st-named Defendant’s solicitors) at $4,880,000 (i.e. $112,000 more than Mr Lau’s offer).  Under this Provisional Agreement (which also has not been signed by the 1^st-named Defendant), the Formal Agreement is to be signed on 20 August 2007.  The 1^st-named Defendant has undertaken to file an affirmation within 2 days to exhibit this document. 

Principles

13.  The principles governing an application for stay of execution pending appeal are well-known.  A stay would not be granted simply because an appeal has been lodged.  It would only be granted if there is a strong chance of success on appeal and where a refusal of stay would lead to prejudice to the appellant which would not be remediable by compensation.

14.  This is an appeal from Deputy Judge Chan’s refusal of a stay of execution of the Registrar’s order.  The judge’s decision was made in the exercise of his discretion.  It is well-established law that an appellate court should not interfere with the exercise of a judge’s discretion unless it is satisfied that the judge has erred in law or in principle, or if he has taken into account some matter which he should not have taken into account, or has left out of account some matter which he should have taken into account, or if the decision was so plainly wrong that it must have been reached by a faulty assessment of the weights of the different factors which have to be taken into account (cf  Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394, applied in Lakhan v Wu Wing Tat [1987] 3 HKC 54)

Discussion

15.  In my view, there is much to be said for the 1st- named Defendant’s argument that the judge failed to take into account the fact that if the property were offered for sale by the Plaintiff bank, as a mortgagee sale it would be likely to attract a lower price.  It is well-known that mortgagee sales generally produce lower prices and I can see how the execution of the order for sale could well jeopardize the proposed sale and purchase.  In any event the Plaintiff bank does not object to the sale of the property as such.   

16.  It was argued on behalf of the Plaintiff bank that after execution of the order for vacant possession and the order for sale, the 1^st-named Defendant and the Plaintiff could both offer the property for sale on a parallel basis, and it was argued on behalf of the Plaintiff bank that it owes a duty to the Defendants to get the best price.  However in reality, it would not escape the notice of estate agents and potential purchasers that the property was also being offered for sale simultaneously by a bank, and as such the property would attract correspondingly lower offers.  That would leave the Defendants with no recompense because so long as the bank has done its best to get the highest offer it could get on the market, the Defendants would not be able to claim any damages.

17.  It was also argued on behalf of the Plaintiff bank that these offers may not be bona fide.  There is no evidence before me to indicate that they are not.  Of course the Provisional Agreement has not yet been signed by the Defendants but as far as the potential purchasers are concerned, they have done everything necessary and a deposit cheque has been tendered in favour of the 1^st-named Defendant’s solicitors.  The Provisional Agreement only needs to be signed by the Defendants for it to be binding.

18.  As for the Plaintiff bank’s concern about delay, the bank’s financial position is covered by interest and it is not disputed that the market is rising.  That is shown by the rise of $112,000 in the few days between Mr Lau’s offer and Mr Phu’s offer.  In any event, the stay of execution I granted was not without time limits - it is only up to the date of the Formal Agreement (subject to liberty to apply).

19.  In the circumstances, I considered that an appeal from the judge’s exercise of discretion to refuse a stay was strongly arguable in light of his failure to take into account the effect of a mortgagee sale on the property price.  I have also taken into account the fact that if a stay were not granted, the loss to the Defendants in the difference in price would not be recoverable by them if the Plaintiff had done all it could to get the best price it could obtain on the market as a mortgagee. 

20.  Accordingly I granted a stay of execution of the Registrar’s order for delivery of possession and the order for sale pending the execution of a formal agreement for sale and purchase between the Defendants and the potential purchasers Mr Phu and Ms Lai which is proposed to be on 20 August 2007.  I gave liberty to apply (to myself or to another judge in my absence) in case for some reason the formal agreement cannot be signed on that day.  Thereafter I would expect the solicitors in charge of the sale to be able to work out an arrangement with the Plaintiff bank pending completion.  However, erring on the side of caution I gave liberty to apply generally. 

21.  As for that part of the summons that also asks for a stay of execution of the order for fi.fa, I see no reason for such a stay although I would find it rather surprising if the Plaintiff bank would wish to incur the expense of fi.fa. proceedings if a sale of the property at an adequate price is pending.

Order

22.  Accordingly I ordered a stay of execution of the Registrar’s order for delivery of possession and order for sale pending the execution of a formal agreement for sale and purchase on 20 August 2007.  There will be liberty to apply generally.  As for costs, the 1^st-named Defendant was 20 minutes late for the hearing, and after assessment of the Plaintiff’s costs on a gross sum basis, I ordered the 1^st-named Defendant to pay the Plaintiff’s costs assessed at $900 to represent the time wasted, and I also ordered that the rest of the costs of the hearing should be costs in the cause of the appeal.