XCHRX Honestwin Ltd. v. Mezely Trading Ltd.

CACV 311/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 311 OF 1998

(ON APPEAL FROM HCA 9024 OF 1996)

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This is an application for stay of execution of a judgment of Seagrott, J. made on 4 November 1998. The judge gave judgment for the plaintiff in the action (Honestwin Limited) for HK$16,138,280 with interest and costs. The defendant in the action (Mezely Trading Limited) has given notice of appeal against that judgment. (Rogers, J.A., on 19 April 1999, allowed notice of setting down that appeal to be given out of time.)

2. On 26 April 1999, there is due to be heard a petition presented by the plaintiff for the winding-up of the defendant. If a stay of execution pending appeal is not granted, it is extremely unlikely that the winding-up court will allow any adjournment of the winding-up proceedings pending the appeal : see In re Amalgamated Properties of Rhodesia (1913) Limited [1917] 2 Ch. 115. So this application must be determined today.

The background

3. The action in which Seagroatt, J. gave judgment against the defendant was an action for damages for breach of a contract for the supply of fishmeal by the defendant to the plaintiff. The plaintiff sold on the fishmeal the subject of its contract with the defendant but the defendant defaulted in performance of its contract with the plaintiff. The plaintiff claims to have suffered substantial loss as a result, since it has had to pay compensation to the party to whom it had sold on the goods.

The defendant's appeal

4. The defendant seeks to raise in its appeal two points.

5. The first point is that the contract made between the plaintiff and its buyer was an illegal contract, because it provided for payment in RMB, in breach of the exchange control laws of the People's Republic of China.

6. The second point is that the award of damages was wrongly made in favour of the plaintiff because it reflected a compromise payment made by the plaintiff to its buyer which the defendant says was penal in nature and so ought to be disregarded in assessing the damages to be paid by the defendant to the plaintiff.

The law

7. The principles on which the court may properly be invited to order a stay of execution pending an appeal are not in dispute and may, in my judgment, be summarised as follows.

8. The court may be prepared, if it considers that the appeal has sufficient merit, to grant a stay of execution if enforcement of the money judgment under appeal would result in the appellant's business being closed down (or, to use the word used by Mr. Leo Remedios, for the defendant, in his skeleton argument in support of this application, "ruined"). Where a stay of execution is being considered, the court is entitled to, and very often will, order, as a term of granting the stay, that the appellant should bring some or all of the amount of the judgment awarded against him into court. I bear these principles in mind in coming to the conclusion at which I have to arrive in order to dispose of this present application.

The first ground of appeal

9. As to the first ground of appeal, it has to be observed that at no stage have the pleadings of the defendant ever asserted the illegality on which it is now said it is entitled to rely. This point first surfaced on the 10th day of the trial when a report from an expert in the laws of the People's Republic of China was put before the court and an expert witness for the plaintiff, Mr. Bai Tao, was recalled to give evidence about that report.

10. Counsel for the plaintiff referred Mr. Bai Tao to the report in this way :-

"Just one final question on this topic. Please look at page 39, where it talks about the price in RMB. Just looking at this contract alone, would you say that this contract is valid or invalid under the currency regulations?"

11. Mr. Bai Tao answered :-

"Looking at this contract alone, since both parties agreed that the payment be made in RMB, it would not affect the validity of the contract."

12. This point was one which clearly had to be taken on the pleadings if it was to be further developed.

13. Mr. Leo Remedios appreciated that the point had in fact not been pleaded. He had only recently come into the action and had had not time to consider the matter. He accepted that the point should be pleaded and he told the judge he would nevertheless be seeking to raise it. He was not prepared to deal with the matter immediately. He told the judge that by the next morning he would make the amendment and on this footing he asked the judge's leave to allow him to cross-examine Mr. Bai Tao on the basis of the report, even though those matters had not been previously raised. The judge might have agreed to do this but in fact he did not do so. Mr. Remedios was not allowed by the judge further to pursue the point either in cross-examination or any other way. He now complains that the judge was wrong to do this. He says that, in the circumstances, the Court of Appeal will in due course grant the defendant a new trial, a new trial of all the issues ventilated in the original trial, not just a new trial of this point about the illegality.

The second ground of appeal

14. The second point, the penalty point, was pleaded and argued. The judge expressed himself satisfied that the plaintiff's conduct, in agreeing the amount of compensation which it had to pay its own buyer, could not be challenged. The judge thought that the plaintiff had done its best to keep the compensation payable, and paid, by the plaintiff to its buyer to an absolute minimum. He took the view that the sum paid, RMB8m, could safely and properly be regarded as compensation within the ambit of the foreign economic contract law of the People's Republic of China, and not a penalty at all.

Conclusion

15. It is necessary, in deciding whether or not to grant a stay of execution in the circumstances such as the present, to form at least a provisional view as to the merits of the appeal. I have to say that these seem to me to be exiguous. I see very little hope of success for the defendant on either of its two points. On the other hand, I am conscious that the defendant's business may well be "ruined" if on 26 April 1999 the companies court refuses an adjournment of the winding-up proceedings which, as I have already said, it is very likely to do. No doubt, the liquidator, if appointed, will be able to prosecute the appeal, if funds are made available to him for the purpose by those responsible for the conduct of the defendant's affairs, but, of course, I cannot speculate as to that. It is too remote to consideration to justify my putting it into the scales.

16. The only way, as it seems to me, to do justice to both sides here is to allow any stay of execution only on terms that a substantial part of the damages awarded to the plaintiff be brought into court forthwith. Having regard to the unlikelihood, as it seems to me, of the appeal succeeding on either of the two points taken by the defendant, and to the fact that the plaintiff has been kept out of its money for a very considerable time (and having regard also to the extraordinary way in which the litigation below was conducted on behalf of the defendant, which changed its solicitors and counsel in the middle of the trial), I have no doubt that the RMB8m or so which is the subject of the defendant's challenge to the judgment on these two points should be brought into court.

17. I am therefore prepared to award a stay of execution as asked, if, but only if, the defendant is prepared to submit to the inclusion in the order of a term requiring it to bring into court, by not later than 4:00 p.m. this afternoon, the sum of RMB8m (or its equivalent in Hong Kong dollars) to stand to the credit of the action. Since I understand the defendant is in fact unwilling to submit to such a term, I have no alternative but to refuse this application.