LI YIZHOU v. CHINA ZENITH CHEMICAL GROUP LTD

HCA 1790/2023

[2024] HKCFI 2616

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1790 OF 2023

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D E C I S I O N

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1.  These proceedings concern a bond instrument dated 23 May 2016 (“Bond Instrument”) issued by the defendant in favour of the plaintiff in the principal amount of HK$10,000,000. On 3 June 2024, I granted summary judgment for the plaintiff pursuant to Order 14, rule 1 of the Rules of the High Court (Cap 4A) (“Judgment”) and ordered, among other things, the defendant to pay the plaintiff HK$10,000,000, being the principal amount of the Bond Instrument, and HK$4,200,000, being interest due under the Bond Instrument.

2.  By a notice of appeal to judge in chambers dated 13 June 2024, the defendant lodged an appeal against the Judgment, which has been fixed to be heard before Deputy High Court Judge Andrew Li on 8 October 2024. Further, by a summons dated 11 September 2024 (“Stay Summons”), the defendant applied to this court for a stay of execution of the Judgment until the determination of the appeal or further order of the court.

3.  Having read the parties’ respective written submissions, I am satisfied that an oral hearing is not necessary and that the Stay Summons is suitable for disposal on paper only pursuant to the guidance laid down by the Court of Appeal in Tsang Wing Kwai v Tsang Wing Fai [2018] 5 HKLRD 350, §24, per Lam VP (as he then was).

Background

4.  The defendant was at all material times and is a listed company on the Stock Exchange of Hong Kong.

5.  On 17 June 2014, the defendant made a voluntary announcement in relation to the issuance of corporate bonds. According to the announcement, the defendant and one Zenith Investment Limited (“Zenith Investment”) entered into an agency agreement on 17 June 2014 pursuant to which Zenith Investment agreed to procure subscribers to subscribe for the bonds issued by the defendant. The agency period was 90 days from the date of the placing agreement or such longer period as agreed by the defendant and Zenith Investment in writing. According to the defendant, the agency was not extended in writing by the defendant and Zenith Investment.[1]

6.  According to the plaintiff’s case, he entered into a written agreement dated 23 April 2016 (“Agreement”) with Zenith Investment, under which Zenith Investment agreed to sell as the defendant’s agent, and the plaintiff agreed to purchase, a bond issued by the defendant in the principal amount of HK$10,000,000 (“Bond”). On 23 May 2016, the plaintiff paid Zenith Investment HK$10,000,000 for the purchase of the Bond through his account maintained with SBI China Capital Finance Services Ltd (“SBI Account”).

7.  On the other hand, according to the defendant’s case, it entered into a subscription agreement dated 18 May 2016 (“Subscription Agreement”) with Zenith Investment under which Zenith Investment, as principal, agreed to subscribe for a bond issued by the defendant in the principal amount of HK$10,000,000 (“Zenith Bond”). Shortly thereafter, Zenith Investment decided to transfer the Zenith Bond to the plaintiff, and executed a bond transfer form dated 23 May 2016 to such effect. On the same day, the defendant issued the Zenith Bond, stamped with the words “CANCELLED”, to Zenith Investment.

8.  Importantly, it is common ground between the parties that, on 23 May 2016:

(1)  Zenith Investment remitted HK$10,000,000 to the defendant; and

(2)  the defendant issued the Bond Instrument in favour of the plaintiff.

9.  According to the defendant’s case, later on 23 May 2016, Zenith Investment instructed the defendant to cancel the Bond Instrument, redeem the Zenith Bond and unwind the Subscription Agreement. The defendant agreed on condition that Zenith Investment would accept a refund of HK$9,500,000 instead of HK$10,000,000. Zenith Investment agreed to such condition. On 25 May 2016, the defendant paid HK$6,000,000 to one Alpha Investment Group Ltd (“Alpha”) and HK$3,500,000 to one Omega Technology Development Ltd (“Omega”), being nominees of Zenith Investment to receive the refund.

10.  Notwithstanding the above, there is no dispute that, on around 25 May 2016, the Bond was deposited into the SBI Account.[2]

The Judgment

11.  By the Judgment, I rejected the defendant’s defence that it cancelled the Bond Instrument on 25 May 2016 at the request of Zenith Investment, and held that the defendant has failed to raise any bona fide defence or triable issues. My reasons may be summarised as follows:

(1)  The starting point is that there is no dispute that the defendant issued the Bond Instrument, by way of deed, in favour of the plaintiff in the principal amount of HK$10,000,000 on 23 May 2016.

(2)  Pursuant to Clause 3.1 of the Bond Instrument and the Bond Certificate in Appendix 3 thereto, the defendant owed a direct, unconditional and contractual obligation to the plaintiff to fulfil the terms of the Bond Instrument.

(3)  The defendant’s claims that it cancelled the Bond Instrument at the request of Zenith Investment on 23 May 2016, and that the Bond Instrument is allegedly invalid, are unparticularised and not supported by any documentary evidence.

(4)  In any event, there is no evidence suggesting that any alleged cancellation of the Bond Instrument was made pursuant to the terms of the Bond Instrument or otherwise agreed by the plaintiff in writing. Even on the defendant’s own case, it has never informed the plaintiff of the alleged unilateral cancellation of the Bond Instrument at all.

(5)  The defendant has given inconsistent reasons for the alleged invalidity of the Bond Instrument through its solicitors’ letters dated 21, 27 and 28 April 2023 and in the affirmations of Ms Chan Yuk Foebe[3] (“Ms Chan”), which tends to show that the defendant’s defence lacks credence.

(6)  The defendant’s argument that the plaintiff did not pay consideration for the Bond Instrument, to my mind, does not have any substance in the light of the undisputed fact that the Bond Instrument was issued by the defendant in favour of the plaintiff by way of deed.

The applicable legal principles

12.  The principles governing the grant of a stay of execution pending appeal are well-settled and have been set out in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84, §§6-10, per Ma J (as he then was).

13.  An appeal does not operate as a stay of execution of the decision below. Unless an appellant can justify a stay by demonstrating that good reasons for granting one exist, a stay will not be ordered. Good reasons can exist in a variety of forms and while it is not possible to set out an exhaustive definition of what would constitute good reasons, reference is commonly made to factors such as whether the absence of a stay would render an appeal nugatory, and the merits of the appeal.

14.  The existence of a strong appeal will usually by itself constitute a good reason to grant a stay.

15.  For the purpose of a stay application, the court is only required to form a preliminary view on the merits of the appeal. Ultimately, the court embarks on a balancing exercise and uses its common sense, bearing in mind that the starting point is that the successful party is not to be deprived of the fruits of his success without good reason for doing so.

Discussion

16.  The defendant argues that there are strong grounds of appeal, and further that if a stay is not granted, there would be a serious deleterious effect on the defendant and the appeal would be rendered nugatory.

(i)  Merits of the appeal

17.  First, the defendant seeks to rely on the evidence allegedly discovered by it subsequent to the Judgment for the purposes of demonstrating that there is a triable issue in its defence and that the merits of its appeal meet the requisite standard required for a stay of execution. The new evidence, produced in the 2^nd affirmation of Ma Kin Ling[4] (“Mr Ma”), is an undated letter issued by Zenith Investment to the defendant (“Letter”) in which Zenith Investment stated as follows:

“本公司Zenith Investment Ltd同意中国天化工集团有限公司以港币 9,500,000元正退回本公司於2016年5月23日未成功购买债券的本金。

请将上述该港币 6,000,000以支票付至以下银行：

收款人姓名：Alpha Investment Group Ltd

请将上述该港币 3,500,000以支票付至以下银行：

收款人姓名：Omega Technology Development Ltd”

18.  According to Mr Ma’s affirmation, the Letter had been kept by Mr Chiau Chi Kong[5] (“Mr Chiau”), a former consultant of the defendant who handled the subject transaction in respect of the Bond and the Zenith Bond, in his room at the defendant’s office at China Resources Building (“China Resources Office”). In July 2021, Mr Chiau left his employment with the defendant, but did not vacate his office room thereafter. In January 2024, when the defendant relocated its office to Shui On Centre (“Shui On Office”), the defendant packed up the items in Mr Chiau’s room at the China Resources Office and brought them over to the Shui On Office. In or around July 2024, Mr Chiau attended the Shui On Office to review the items brought over by the defendant from his old room at the China Resources Office. After reviewing those items, Mr Chiau passed a stack of documents which he said belonged to the defendant, including the Letter, to Mr Ma.

19.  It is well established that, in order for any new evidence to be admissible on an appeal, the defendant must satisfy each of the following three requirements laid down in Ladd v Marshall [1954] 1 WLR 1489 at 1491, per Denning LJ (as he then was):

(1)  it must be shown that the evidence could not have been obtained with reasonable diligence for use at the hearing below;

(2)  the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and

(3)  the evidence must be such as is presumably to be believed, or in other words it must be apparently credible, though it need not be incontrovertible.

20.  For the present purposes, I would only have to form a preliminary view on the admissibility of the Letter on appeal. To my mind, the defendant has failed to satisfy any of the three requirements laid down in Ladd v Marshall (supra) for the following reasons.

21.  On the first requirement in Ladd v Marshall (supra), based on the defendant’s own case, the Letter, albeit not in its file, was all along kept at its office premises and thus within its possession, custody or power. Even taking the defendant’s case at its highest, there is no suggestion that the defendant exercised any reasonable diligence before the hearing below to ascertain whether it had the complete set of documents relating to this matter in its file, for instance, by making inquiries with Mr Chiau or asking him to review the documents left behind in his office room. Therefore, it appears to me that the defendant has failed to show that the Letter could not have been obtained without reasonable diligence for use at the hearing below.

22.  As to the second requirement in Ladd v Marshall (supra), I am not persuaded that the Letter, if adduced at the hearing below, would probably have an important influence on the result of the case. In my view, the Letter raises more questions than providing answers to the defendant’s case, for the reasons as follows:

(1)  First, the Letter does not contain any sufficient details of the bond referred to therein, such as the principal amount and the tenor of the bond, which are referable to the Bond or the Zenith Bond.

(2)  Secondly, the defendant has not adduced any evidence from Mr Chiau or other individuals with personal knowledge of the Letter to substantiate the alleged correlation of the Letter with the Bond or the Zenith Bond.

(3)  Thirdly, the Letter is undated, so it does not show when Zenith Investment allegedly gave the payment instruction to the defendant.

(4)  Fourthly, the Letter referred to the unsuccessful purchase of a bond (“未成功购买债券”), but there has been no suggestion in the defendant’s case that the initial purchase of the Bond or the Zenith Bond had been unsuccessful.[6]

23.  As to the third requirement in Ladd v Marshall (supra), for the same reasons as stated at §22 above, I am not persuaded that the Letter is apparently credible. Nor am I satisfied that Mr Ma’s explanation of the discovery of the Letter is apparently credible for the following reasons. First, Mr Chiau’s alleged involvement in the subject transaction has only been raised for the first time by the defendant as part of the new evidence sought to be adduced on appeal, but was never mentioned in any of the three affirmations filed by the defendant in the proceedings below. Secondly, the defendant’s claim as to Mr Chiau’s attendance of the Shui On Office “in or around July 2024” is a bare allegation without any particulars.[7] Thirdly, the defendant has not offered any explanation as to why, on its own case, it took two months after the alleged discovery of the Letter to apply for leave to adduce the same as new evidence on appeal.

24.  For the above reasons, I am unable to accept the defendant’s submission that the Letter would give rise to a strong ground of appeal.

25.  Turning to the defendant’s argument that the Bond Instrument was not delivered, it is right to point out that the signature page of the Bond Instrument expressly provided that it was signed, sealed and delivered (“签署、加盖公司印章并交付”) by the defendant. Mr Liu, counsel for the defendant, submitted that the characters “交付” on the signature page of the Bond Instrument are inconclusive, and whether or not a deed takes effect upon delivery would depend on the intention of the executing party, citing Wong Yiu Ting v Kwok Wing Chiu [2009] 1 HKLRD 399. It is noteworthy that, in Wong Yiu Ting (supra), Lam J (as Lam PJ then was) pointed out (at §20) that “[d]elivery takes place when the party executing a document intends it to take effect and it is usually inferred from conduct in terms of signing and sealing”. In the present case, there is no dispute that the Bond Instrument was duly signed and sealed by the defendant. More importantly, even on the defendant’s own case, there is no evidence suggesting that the defendant did not intend the delivery of the Bond Instrument to take effect when Ms Chan executed the same on its behalf on 23 May 2016. In my view, therefore, this argument has no substance at all.

26.  Lastly, the defendant complains that the plaintiff has not produced the original Bond Instrument for inspection after the Judgment was delivered. Mr Liu has not elaborated in his submissions why the complaint would give rise to a strong likelihood of success at the appeal. For the present purposes, I am unable to see how it can be said that this complaint can give rise to any good reason for a stay.

(ii)  Any serious deleterious effect on the defendant without a stay

27.  The defendant argues that, in the absence of a stay, there would be a serious deleterious effect on the defendant in that it is already subject to an ongoing winding-up petition.

28.  In my view, it is pertinent to heed the words of caution by Ma CJHC (as he then was) in Credit Lyonnais v SK Global Hong Kong Ltd [2003] 4 HKC 104, §10, where his Lordship stated that it is not up to the court to use its inherent jurisdiction to create a regime in which a judgment debtor or insolvent company is able to obtain a moratorium on its debts or to give it some “breathing space” to allow it to negotiate with creditors.

29.  Further, and in any event, I note that it is the defendant’s own evidence that, notwithstanding the winding-up proceedings, it has been able to raise over HK$200 million since January 2024 and is in the process of carrying out further fundraising activities.[8] The defendant also emphasises in its evidence that it is not seeking a stay of execution simply due to an inability to satisfy the Judgment.[9]

30.  In these circumstances, I am not persuaded that, in the absence of a stay, there would be any serious deleterious effect on the defendant as alleged.

(iii)  Whether the appeal would be rendered nugatory without a stay

31.  The defendant also argues that the appeal would be rendered nugatory owing to the plaintiff’s lack of any substantial assets in Hong Kong.[10]

32.  It is well established that, where the order appealed against is a money judgment, the court will require evidence as to why the levying of execution will result in the appeal being rendered nugatory, such as an appreciable risk that the respondent to the appeal would not be able to repay in the event of a successful appeal: Star Play (supra), §9(1). The onus is on the defendant 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 defendant succeed in its appeal: King Victory Investment Ltd v Chan Hon Wing and Anor [2023] HKCFI 2992,[11] §24, per DHCJ Le Pichon. The fact that a plaintiff does not own any substantial assets in this jurisdiction was held insufficient to make out a case of impecuniosity for the purposes of a stay application: King Victory Investment Ltd (supra), §25.

33.  In the present case, the defendant has not adduced any evidence to the effect that there is an appreciable risk that the plaintiff would not be able to repay the judgment sum to the defendant in the event of a successful appeal. In the circumstances, I am unable to accept the defendant’s contention that the appeal would be rendered nugatory if a stay is not granted.

(iv)  Balance of justice and exercise of the court’s discretion

34.  Bearing all the foregoing considerations in mind, I am of the view that the defendant has failed to demonstrate that its appeal is so strong as to justify the grant of a stay, or that there would be any prejudice to the defendant as alleged if a stay is refused.

35.  As the Court of Appeal held in King Victory Investment Ltd v Chan Hon Wing and Anor [2024] HKCA 849, §32, per Chow JA, if a defendant is genuinely concerned that it might not be able to recover any sum received by the plaintiff should it succeed in the appeal, its position could be secured by paying the judgment sum into court, there being no evidence or suggestion that it is unable to do so. However, no such offer to pay the judgment sum into court has ever been made by the defendant either in its evidence or submissions.

36.  Balancing the respective interests of the parties, I conclude that a stay is not justified in the circumstances of this case.

Disposition

37.  For the above reasons, the Stay Summons shall be dismissed.

38.  Costs should follow the event. Having considered the plaintiff’s statement of costs,[12] I would order the defendant to pay the plaintiff’s costs of the Stay Summons, summarily assessed at $70,000.