TOECA NATIONAL RESOURCES B V v. BARON CAPITAL LTD AND ANOTHER

CACV 55/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 55 OF 2013

(ON APPEAL FROM HCA NO 1913 OF 2009)

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REASONS FOR DECISION

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Introduction

1.  On 26 February 2013, Mimmie Chan J gave judgment in favour of the plaintiff in HCA1913/2009 Toeca National Resources BV (“Toeca”) against the 1^st defendant Baron Capital Ltd (“BC”) and the 2^nd defendant Joseph Wan Chuen Chung (“Mr Wan”) in the sum of $116,820,000 and $1,947,000 with interest. 

2.  On 25 March 2013, BC and Mr Wan served a Notice of Appeal.

3.  On 16 April 2013, they issued an application before the trial judge for a stay of execution pending appeal. 

4.  In the meantime, on 25 April 2013 Toeca obtained a garnishee order nisi against BC in the sum of $5m.  This was made absolute on 27 May 2013.

5.1    On 7 June 2013, the application for stay pending appeal was heard. 

5.2    On 13 June 2013, the judge handed down a written decision granting a stay, on condition that the appellants pay into court, or provide  a bank guarantee of, half the judgment sum (about $59m) by 4 July 2013 and that the garnishee order absolute stay in place, save that enforcement thereof be stayed pending appeal.  

5.3    By 4 July 2013, BC and Mr Wan had failed to make payment into court or provide the bank guarantee.  On the same day, BC and Mr Wan lodged an application to a single judge of the Court of Appeal for stay of execution pending the appeal, which appeal apparently is to be heard in March next year.  The application for stay is to be heard on 10 October 2013. 

6.1    Toeca being at liberty to enforce the judgment as BC and Mr Wan had not complied with the conditions for a stay, the latter issued a summons on 19 July 2013 for an interim stay pending the application to be heard on 10 October 2013. 

6.2    I heard this application for an interim stay on 16 August 2013.  At the conclusion of the hearing, I dismissed the application and ordered that BC and Mr Wan pay Toeca’s costs.  I indicated that I would give brief written reasons shortly.  I do so now.

Principles

7.  Even though this application is only for an interim stay, it is still the duty of the court to apply the well-established principles set out in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84, in particular to consider whether the applicants (BC and Mr Wan) have discharged their burden to justify their claim for a stay, with reference to:

(1)   the prospects of success on appeal;

(2)   (if the prospects were not sufficiently strong) whether the appeal would be rendered nugatory if an interim stay is not granted; and

(3)   any prejudice that would be suffered by the respondent Toeca.  

Merits of appeal

8.  I have read the judge’s detailed reasons for finding that the notice from Toeca to BC and Mr Wan was sent “as soon as practicable”.  My preliminary view is that essentially it is a finding of fact, based on the factual matrix (see paras. 115-6 of the judgment).  I have also read the grounds of appeal and the respondent’s notice.  I should not say any more at this stage other than that I do not consider there to be a strong likelihood that the appeal would succeed.

Would the appeal be rendered nugatory?

9.  As for the argument that the appeal would be rendered nugatory if an interim stay is not granted, there are two points to note. 

10.1    The first is that the judge had granted a conditional stay, but BC and Mr Wan had failed to comply with the condition.  They say that it is because they are unable to provide the required sum of about $59m.  However I am not persuaded by the materials presently before me that that is so.

10.2    Using the figures provided by counsel for Toeca and not challenged by counsel for BC and Mr Wan, Mr Wan claims his financial net worth has dropped by $134.75m (from $137.4m to $2.65m) in less than 5 years.  That represents a drop of more than 98% and is a staggering sum by any standards. 

10.3    Mr Wan has sought to explain this drop as follows.  Taking round figures, legal fees ($17m) and tax ($5m) accounted for $22m.  An injection of funds into BC took $11m.  He says he suffered losses in investments ($16m in Sino Win, $7m in bonds and $13m in a securities portfolio he has disposed of to his daughter).  However that would still leave him with about $69m.  He says now that he suffered gambling losses to the tune of $70m.

10.4    In other words, the gambling losses were (on Mr Wan’s present case) the single largest reason for the drop in his financial net worth, accounting for the loss of more than half of his fortune, and yet this was never advanced when he first applied for stay before the judge.  Moreover, the materials presented are less than satisfactory.  Whilst he has exhibited cheques paid by him to casinos, and vice versa, little weight can be given to them when there is no record of winnings or losses.  It is notoriously easy for money to be moved (and lost track of) through casinos as there is no paper trail showing the movement of chips, and winnings can be cashed in otherwise than in the form of a cheque from a casino. 

10.5    As for BC, again there has been a substantial fall in its net asset value from $18.8m to less than $0.5m in less than 5 years.  That represents a drop of more than 97%.  Although the financial statements are audited, it should be noted that (1) although Mr Wan says he has disposed of his interest in BC to his daughter, he (not she) is the licensed Responsible Officer according to SFC records and (2) he had previously admitted in evidence that it was normal practice for him to receive payments personally from clients on behalf of companies in the Baron Group, allocating payments to such recipients as he wished.  

11.  The second point is that, if an interim stay is refused, and Toeca proceeds to petition for Mr Wan’s bankruptcy and BC’s winding-up, the appeal would not be necessarily rendered nugatory.  It would then be for the trustee in bankruptcy and liquidator respectively to consider whether to proceed with the appeal, applying an objective and professional judgment to the merits of the case. 

12.  Finally it was argued by BC and Mr Wan that because Toeca is a foreign plaintiff, it may be difficult to retrieve any payments made to it and the shares in Sino Resources Group Ltd held by Toeca’s solicitors may not be adequate compensation, should BC and Mr Wan succeed on appeal after having had judgment executed against them.  That would be an argument for making a payment into court instead of to Toeca itself, but it is not by itself an argument for a stay.

Prejudice to Toeca?

13.  As for prejudice to Toeca, I would accept that a delay in execution for 8 weeks would not necessarily add much to the prejudice it has already suffered so far, but in the balancing exercise performed by the court, the lack of prejudice and the relatively short period of time between this application and the hearing for a stay cannot by themselves justify the grant of an interim stay.

Order

14.  For the reasons set out above, I dismissed the application and ordered that BC and Mr Wan pay Toeca’s costs.