KING VICTORY INVESTMENT LTD v. CHAN HON WING AND ANOTHER

HCA 1702/2022

[2023] HKCFI 2992

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1702 OF 2022

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(By Original Writ and Order of Master Kent Yee to carry on dated 16 March 2023)

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REASONS FOR DECISION

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1.  There were 4 applications before the Court:

(1)  the Defendants’ summons dated 24 October 2023 seeking a stay of the execution of Master Queenie Lau’s decision of 6 July 2023 (“the Master’s Decision”) pending the Defendants’ appeal (“the stay application”);

(2)  the Plaintiff’s applications for charging orders against (a) D1’s shares; and (b) D2’s shares respectively; and

(3)  the Plaintiff’s application for a garnishee order against D2’s bank account.

2.  At the conclusion of the hearing, the Court dismissed the Defendants’ stay application with costs to the Plaintiff, and made absolute, (i) the charging orders in respect of the shares of D1 and D2 respectively, and (ii) the garnishee order. My reasons are set out below.

Background

3.  For the relevant background, reference should be made to the Reasons for Decision dated 6 September 2023 (“the Reasons”) when this Court dismissed the Defendants’ appeal from the Master’s Decision. The same nomenclature is adopted.

4.  On 25 September 2023, Master Lai ordered the Defendants to show cause against the charging orders and the garnishee order, with the hearing scheduled for 25 October 2023 before Master S P Yip.

5.  On 27 September 2023, the Defendants filed their Notice of Appeal (“NOA”).

6.  The Bank of China (Hong Kong) Limited who is the garnishee adopts a neutral stance to the application for a garnishee order absolute, confirming that the account balance is $58,630.90.

7.  The Defendants’ stay application was taken out the day prior to the hearing scheduled on 25 October 2023 for the charging and garnishee orders and almost 4 months after summary judgment was given. D2’s 3^rd affirmation dated 24 October 2023 (“Yuen 3^rd”) was filed in support.

8.  On 25 October 2023, Master Yip adjourned the charging and garnishee applications to be heard together with the stay application fixed for 10 November 2023.

9.  On 1 November 2023, the Plaintiff filed Mr. Ko’s 7^th affirmation (“Ko 7^th”) in opposition to the stay application.

Applicable principles

10.  The principles governing an application for a stay pending appeal are not controversial. A convenient summary is set out in the judgment of Chow JA in Indian Overseas Bank v Seabulk Systems Inc & Others, CACV 48/2018, [2023] HKCA 889 at §23:

“23. The principles governing an application for a stay of execution of a judgment pending appeal are well established.

(1) The applicant is required to demonstrate a “good reason” for a stay of execution.

(2) Generally speaking, the existence of merely an arguable appeal cannot by itself amount to a sufficient reason to justify a stay. It is the minimum requirement before a court would even begin to consider granting a stay.

(3) In other words, if the court is not convinced that there exist arguable grounds of appeal, no stay will be granted however exceptional the circumstances may otherwise be justifying a stay of execution.

(4) On the other hand, the existence of a strong appeal or a strong likelihood of success will usually by itself enable a stay to be granted because this would constitute a good reason for a stay.

(5) In most cases, where the court is faced with simply the existence of an arguable appeal, it becomes necessary for the applicant to provide additional reasons as to why a stay is justified.

(6) Commonly, this is done by demonstrating that without a stay the appeal would be rendered nugatory, for example, because of an appreciable risk that the respondent to the appeal would not be able to repay in the event of a successful appeal against a money judgment, or because the failure to grant a stay would have a serious deleterious effect on the applicant.

(7) In considering an application for a stay pending appeal, it would be impractical and even undesirable for the court to go deeply into the merits or strengths of the appeal, although the court must still form a preliminary view of these aspects.

  See the judgment of Ma J (as he then was) in Stay Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84, at §§9-10.”

The stay application

11.  For the Defendants to succeed in the stay application, they need to demonstrate that

(a)  at the very least, there is an arguable appeal; and

(b)  they would suffer irremediable prejudice should a stay not be granted.

12.  At the outset, Mr Alex Yeung, counsel for the Defendants, fairly acknowledged that the Defendants are not in a position to show the existence of a strong appeal or a strong likelihood of success. But they maintain that they have an arguable appeal.

13.  They seek to challenge the Court’s analysis of the Representation defence set out in §§39(a) to (h) and 40 of the Reasons on the grounds set out in the NOA.

14.  While the NOA appeared to address each of the sub-paragraphs of §39 and §40, a notable omission is to §39(d) which read as follows:

“(d) the Defendants have not explained why, if the Representation had been made prior to the Loan Agreement, they agreed (by entering into the 1^st Supplemental Agreement) to increase the interest rate from 3% to 6% as from 28 April 2021;)”

15.  In my view, the total absence of submissions to explain the basis of the Defendants’ agreement to double the rate of interest on the Loan payable alone when, on their case, the Representation was made prior to the Loan Agreement alone, renders the appeal unarguable.

16.  As regards the grounds set out in the NOA, having reviewed the Reasons, it suffices to say that I stand by them and do not consider that the NOA has any merit.

17.  It follows that the stay application is to be dismissed without the need to consider the “irremediable prejudice” ground.

18.  But as the appeal remains pending, and in the event that the appeal is considered arguable, the Court proceeded on that assumption and went on to consider the irremediable prejudice ground.

Irremediable prejudice

19.  The Defendants asserted[1] that they will be irremediably prejudiced should a stay not granted as there is an appreciable risk that the Plaintiff would not be able to repay the Defendants in the event of a  successful appeal.

20.  The Defendants placed reliance on the following matters: namely,

(i)  the Plaintiff is a wholly-owned investment vehicle of a listed company (“Listco”);

(ii)  the Plaintiff’s paid-up capital is only $1;

(iii)  as the Plaintiff is in corporate shell of Listco, it is readily conceivable that any sums received by the Plaintiff would be transferred out upon Listco’s instructions; and

(iv)  Listco has not given any undertaking or guarantee that it will repay any sum received by the Plaintiff from the Defendants should the Defendants succeed in their appeal.

21.  The allegation in (iii) bears undertones of impropriety against Listco when no such evidence was filed in support.

22.  Mr Yeung made 2 points on whether any judgment obtained by the Defendants on appeal would be rendered nugatory.

23.  First, as regards Ko’s evidence that the Plaintiff’s cash assets held at its bank has been consistently over $10 million as at 30 June 2022 and 30 June 2023 and that its assets have been consistently over $10 million, it was submitted that it was no more than a bare assertion, suggesting that audited financial statements should have been produced. Second, even if (on the Plaintiff’s evidence) Listco has financial strength, it is irrelevant because of the doctrine of separate legal personality.

24.  However, the Defendants appeared to have lost sight of the fact that the onus is them to show by way of credible evidence that there is a real risk and legitimate fear that any payment to the Plaintiff could not be recovered should the Defendants succeed in their appeal.

25.  The burden is not on the successful party to make an exhaustive list of its assets to disapprove such a risk and to allay such a fear: see Au Kai To Karel v End User Technology Limited [2018] HKCFI 594 at §36. In that case, the plaintiff held a shell company with an issued share capital of $1 and no other assets. Those assertions were held insufficient to make out a case of impecuniosity: at §§34-35.

26.  Mr Ko is a director of the Plaintiff and Listco. The Defendants’ insinuations of potential impropriety are wholly unfounded and inappropriate. Their challenge to the Plaintiff is singularly without substance.

27.  Accordingly, the Defendants failed to make out a case of irremediable prejudice.

The charging orders and garnishee order

28.  On the Plaintiff’s application, the Court approved the draft orders submitted making absolute:

(1)  the charging order in respect of the interest of D1 in 5 ordinary shares of and in More Wealth;

(2)  the charging order in respect of interest of D2 in (i) 5 ordinary shares of and in More Wealth; and (ii) 6,000 ordinary shares of and in Tanka-Smart Village Limited; and

(3)  the garnishee order.