BANK OF COMMUNICATIONS CO LTD v. VICTORY SEASON LTD AND OTHERS

HCMP 292/2023

[2023] HKCFI 2815

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 292 OF 2023

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D E C I S I O N

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Background

1.  On 22 February 2023, the plaintiff (“Bank”) commenced the present Originating Summons under RHC Ord 28 and Ord 88 claiming money judgment and delivery of vacant possession of the Mortgaged Property.

2.  The substantive hearing of the Originating Summons took place before me on 21 September 2023.  The Originating Summons was contested by the 1^st, 5^th, and 6^th Defendants (“Defendants”), who were represented by two Counsel at that hearing.  Upon considering the submissions and evidence before me, I granted an order substantially in terms of the relief sought by the Bank (“Order”), including that the 5^th and 6^th Defendants shall deliver vacant possession of the Mortgaged Property to the Bank within 28 days after the Order.  The prescribed deadline fell on 19 October 2023.

The Defendants’ application

3.  On 5 October 2023, the Defendants appealed against the Order to a Judge in chambers.  By Summons dated 19 October 2023, the Defendants applied for an order that the entire Order be stayed pending the determination of their appeal, further or alternatively, there be an extension of time of four months (from the date of the order to be made) to deliver vacant possession of the Mortgaged Property to the Bank.  In support of that Summons, the 5^th Defendant filed a Second Affirmation dated 19 October 2023.

4.  On 19 October 2023, I directed that the Summons be dealt with on papers. Counsel for the parties have filed written submissions in accordance with the directions made.

Stay of execution – applicable principles

5.  The Defendants rely on Tang Moon Lam v Tang Ying Yeung [2019] HKCFI 2328, §8, which applied the well-established principles in Star Play Development Ltd v Bess Fashion Management Co Ltd[2007] 5 HKC 84, §9.  The Defendants emphasize that where the relevant order under appeal is one for the possession of premises, it can readily be appreciated that without a stay of execution, more often than not it is likely that an appeal would be rendered nugatory (as in the Defendants would have lost the possession of the Mortgaged Property even if they succeed in the appeal).

6.  The Bank relies on Bank of China (Hong Kong) Limited v Twin Profit Limited, HCMP 874/2010, 27 August 2010, §9, which applied Star Play, op cit, §6-10 and Wenden Engineering Co Ltd v Lee Shing Yue Construction Co Ltd, HCCT90/1999, 17 July 2002.

7.  In summary, it is for the defendant to justify a stay of execution by demonstrating good reasons for the stay.  There is no exhaustive definition of what would constitute good reasons, although commonly reference is made to the possibility of the appeal being rendered nugatory without a stay or to the merits of the appeal.  When considering the possibility of an appeal being rendered nugatory without a stay, it is necessary for the court to have regard to the nature of the order that is the subject matter of the appeal.  As to the merits of the appeal, the court should form a preliminary view of the merits and strengths of the appeal.  The existence of an at least arguable appeal is a minimum requirement for a stay.  The existence of a strong likelihood of success on appeal will usually constitute a good reason for a stay.  But where the appeal is merely arguable, some additional reason for a stay must be provided and this may be done by demonstrating that the appeal would be rendered nugatory if the stay were not granted.  It is also relevant to bear in mind any prejudice to the successful party from the grant of a stay.  Ultimately, the court embarks on a balancing exercise, bearing in mind the starting point that the successful party is not to be deprived of the fruits of his success.

8.  There is no dispute on the above principles, which I propose to apply in the determination of this application.

Order for payment of monies

9.  The Defendants argued in the affirmations filed that the subject charges did not cover the debts owed by them, however, that point was not pursued.  At the hearing on 21 September 2023, the indebtedness claimed by the Bank (both in terms of liability and quantum) was admitted by the Defendants.  The Defendants’ legal team reviewed the draft Order at the hearing and confirmed the calculation of the indebtedness including interests to be correct.

10.  The Defendants now argue that “whilst … Ds may not have as meritorious an argument for staying the monetary limb of the Order, this Honourable Court can stay the Order in its entirety on case management grounds, so that the appropriateness of the entire Order can be reviewed in one go at the hearing de novo.”  I reject that argument.  Given that there is no defence whatsoever to the Bank’s monetary claims, there is no good reason to stay the execution of those parts of the Order (being the 1^st to 3^rd paragraphs thereof). 

Order for possession

11.  At the hearing, two lines of defence was raised.  Subject to that, there was no dispute that the requirements under RHC Ord 88 were met, and the Bank was entitled to the possession order of the Mortgaged Property.

12.  The first line of defence was promissory estoppel.  The Defendants argued that during their negotiations with the Bank, the Bank made clear to them that it would cooperate and refrain from enforcing the subject charges and/or guarantees if the defendants continued to work towards a mutually acceptable solution for the debts. In reliance on this understanding, the Defendants were said to have invested significant time, costs, expenses and resources such that the Bank should not be allowed to enforce the charges and guarantees “without any warning, notification or consultation”. 

13.  After reviewing the evidence, I rejected that defence without hesitation. The objective contemporaneous records show that the Bank had been actively enforcing its rights.  In any event, there had been a sufficiently long time since the issuance of the demand letters in late 2022 and early 2023 by the Bank, and the appointment of the receivers on 10 February 2023, to revive the Bank’s legal rights (assuming that such rights were suspended).

14.  The second line of defence was breach of mortgagee’s duties.  The Defendants argued that the receivers unreasonably terminated or refused to accept an offer made by the 5^th Defendant’s son to purchase the Mortgaged Property for HK$620 million.  It is not in dispute that discussion over that offer ended in early May 2023, and nothing further happened in that regard.  The Defendants are not able to articulate how a potential claim for breach of mortgagee’s duties which may sound in damages (assuming that there is one, and none has been made) affects the Bank’s entitlement to the possession order at present.  The Defendants relied on Tse Kwong Lam v Wong Chit Sen [1983] 1 WLR 1349 which in my view is not on point.  That case concerned the sale of a mortgaged property by a mortgagee to a company with which he was closely connected.  The Privy Council held that the mortgagee failed his duties but refused to set aside the sale on the ground of the mortgagor’s delay; damages were ordered.  

15.  In this application, the Defendants barely assert that they have an arguable appeal without elaboration.  Insofar as it is assumed by the Defendants that because an appeal to a Judge in chambers is a hearing de novo, it necessarily follows that for the purpose of the stay application, “it cannot be definitively concluded at this stage that Ds’ appeal in the re-hearing is plainly unarguable”, I find this assumption wrong in principle.  The Defendants bear the burden to demonstrate good reasons for the stay; if it is said that the appeal is arguable, it ought to be demonstrated properly in submissions. 

16.  In my view, the present case is very much a borderline case.

17.  Assuming in the Defendants’ favour that they have a merely arguable appeal, they need to provide additional reason for a stay, for example, by demonstrating that the appeal would be rendered nugatory if the stay were not ordered.  On the evidence before me, I am prepared to accept that the refusal of the stay would have a serious deleterious effect on the Defendants if and insofar as they have to lose the actual possession of the Mortgaged Property prior to the resolution of the appeal.

18.  I have considered the prejudice to the Bank.  I have been informed that (1) the appeal hearing has been fixed to take place on 20 February 2024; and (2) the Bank has not yet started any action to enforce the order for possession (such as writ of possession).  The Bank submits that given the Defendants’ uncooperative attitude, it is unlikely that the Bank would be able to recover the possession of the Mortgaged Property before the appeal hearing.  The Bank is concerned about the delay if it is only allowed to take enforcement action after the appeal. 

19.  Considering all the relevant factors as a whole, and following the approach in Star Play §14, I will order stay of execution of paragraph 4 of the Order pending the Defendants’ appeal to a Judge in chambers but only for the actual possession of the Mortgaged Property.  That is to say, like the plaintiff in Star Play, pending resolution of that appeal the Bank is free to complete all enforcement procedures up to but excluding the actual possession of the Mortgaged Property.  This addresses the prejudice to the Bank concerning delay and the prejudice to the Defendants concerning having to lose possession even if they succeed in that appeal.

20.  I dismiss the Defendants’ stay application in relation to the rest of the Order.  Paragraph 5 of the Order is the usual provision that the enforcement of the order for possession will be avoided by the payment by the defendants to the plaintiff of the judgment sum.  

Extension of time

21.  At the hearing on 21 September 2023, submissions were made on behalf of the 5^th and 6^th Defendants that they required 6 months to deliver vacant possession of the Mortgaged Property, on the ground that the Mortgaged Property was large.  I did not find that to be a good or sufficient reason and refused that request.

22.  Surprisingly, the Defendants simply applied again for time extension by the present Summons.  I agree with the Bank’s submissions that this is a second bite of the cherry.  There may be cases which justify a separate application for extension of time to comply with a possession order, for example, due to material change of circumstances after the Ord 88 substantive hearing.  Those cases aside, if a defendant has good reasons to ask for a longer than usual time to give vacant possession, such reasons should be substantiated and submitted at the substantive hearing.  I find it inappropriate for the Defendants to “spin-off” such arguments into a satellite interlocutory application which, in effect, is an attempt to re-argue the matter.

23.  Moreover, I have not been addressed by the parties whether there is any material difference in the test to be applied in the stay application (made pursuant to RHC Ord 58, r 1(4)) and the time extension application (the Defendants only cited “inherent jurisdiction” in their Summons, but the court also has the power to grant time extension on terms under RHC Ord 3, r 5). 

24.  It is assumed by the Defendants that the time extension application may still succeed solely based on discretionary considerations even if they fail in the stay application, which I do not think is correct.  If the Defendants failed on the stay application, it is wrong in principle that those considerations leading to the dismissal of the stay application can be circumvented in a renewed time extension application, be it based on the court’s inherent jurisdiction or Ord 3, r 5.

25.  In the 5^th Defendant’s Second Affirmation, he complained of substantial inconvenience and hardship suffered by himself, his wife, his children and grandchildren (all said to be residing in the Mortgaged Property) should they be required to deliver vacant possession in the prescribed time.  The 5^th Defendant referred to the senior age of himself and his wife and said that on occasions he felt seriously uncomfortable and needed medical supports, and that his wife suffered from reduction of mobility.  However, only a one-page receipt was produced by him which evidenced a visit he paid to the University of Hong Kong Shenzhen Hospital outpatient clinic.  The 5^th Defendant also referred to the need of his grandchildren, that there are a lot of bulky furniture in the Mortgaged Property which would require specialist care in relocation, and that he employed two domestic helpers who also require relocation which is not easy. 

26.  Despite a good many bare allegations being made by the 5^th Defendant in his Second Affirmation, no mention was made to any effort on his (or his family’s) part to locate any alternative residence or any genuine attempt to relocate, despite the Order made on 21 September 2023.  The suggested time extension of 4 months from the order to be made is not supported by any logical or evidential basis.  Had the Defendants’ assumption been correct (that they can still ask for time extension based on the matters stated in the 5^th Defendant’s Second Affirmation even if they fail in the stay application), I do not agree that the matters mentioned by the 5^th Defendant are good reasons to grant the time extension sought.

27.  For the reasons stated above, I dismiss the Defendant’s application for extension of time.

Disposition

28.  I dismiss the Defendants’ Summons dated 19 October 2023 save that I order stay of execution of paragraph 4 of the Order only for the actual possession of the Mortgaged Property pending the resolution of the Defendants’ appeal from the Order to a Judge in chambers.  For the avoidance of doubt, pending resolution of that appeal the plaintiff Bank is free to complete all enforcement procedures up to but excluding the actual possession of the Mortgaged Property.

29.  As the Defendants have largely failed in their applications, I order the Defendants to pay the plaintiff Bank’s costs of and occasioned by the Summons dated 19 October 2023, to be summarily assessed on paper.

30.  The plaintiff Bank has submitted a skeleton bill together with its submissions.  I direct that the Defendants shall file and serve their list of objections (limited to 1 page) within 3 days of the order herein.  The plaintiff Bank shall file and serve its written response (limited to 1 page) within 2 days thereafter.