FIRST LASER LTD v. FUJIAN ENTERPRISES (HOLDINGS) CO LTD AND ANOTHER

HCA 4414/2001

[2020] HKCFI 2536

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4414 OF 2001

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D E C I S I O N

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Introduction

1.  This is the Defendants’ application for stay of execution of my judgment handed down on 8 April 2020 against them in favour of the Plaintiff in the sum of HK$250,168,048 with interest and costs. 

2.  The action had a long history.  The Plaintiff (“First Laser”) is a company incorporated in Macau.  The Defendants are “window companies” of the Fujian Provincial Government of the People’s Republic of China.  The Plaintiff commenced this action in October 2001, suing under the First Laser Agreement claiming that it is the beneficial owner of 51% of the shares in Fujian Casix Laser Inc (福建華科光電有限公司) (“FCL”) held by the 1^st Defendant (“FEHC”), which FEHC sold, together with its own 49% interest, to JDS Uniphase China Holdings Company for US$60 million.  The proceeds of sale were remitted to the Fujian Provincial Government through the 2^nd Defendant (“Jian An”), save for US$9 million which was subsequently paid into court pursuing to an order of this court.  On 5 February 2008, I handed down judgment in favour of the Plaintiff.  On 4 January 2011, the Court of Appeal allowed the Defendants’ appeal and remitted the issue of restitution to this court for determination under Mainland law.  The Plaintiff’s appeal to the Court of Final Appeal was dismissed on 6 July 2012.  On 8 April 2020, I handed down judgment against the Defendants in favour of the Plaintiff in the remitter proceedings (“Remitter Judgment”).  The Defendants appeal my Remitter Judgment and apply for stay of execution pending appeal.

The applicable legal principles on stay of execution

3.  The legal principles applicable to stay of execution are well established: see Star Play Development Ltd v Bess Fashion Management Co Ltd[1], per Ma J, as he then was.  Prima facie, a successful litigant is entitled to have the fruits of the litigation.  Unless an applicant can justify a stay of execution, one will not be granted.  The burden is on the applicant to justify a stay by showing that there are good reasons for a stay.  The starting point is the existence of an arguable appeal.  The existence of a strong ground of appeal or strong likelihood of success on appeal is by itself a good reason for stay.  In the majority of cases, it is undesirable and unnecessary to go deeply into the merits and strength of an appeal.  If an applicant only has an arguable appeal, he will have to provide additional reasons as to why a stay is justified.  But, even where a compelling reason is shown, the question remains a matter for the court’s discretion upon balancing the risk of injustice to the parties which an order for stay or a refusal to make such order would cause: see Sunico AS & Ors v Revenue and Customs[2] and Hammond Suddard Solicitors v Agrichem International Holdings Ltd[3].

4.  In Hammond Suddard, Clarke LJ (as Lord Clarke then was) held that in considering whether an appeal will be stifled if a stay is refused, the court takes a holistic approach and considers all the circumstances of the case including balancing the risk of injustice to the applicant against that to the respondent, first one way and then the other as in the case of making an interlocutory injunction.  In particular, the court considers what are the risks of the appeal being stifled if a stay is refused?  What are the risks of the applicant being unable to recover monies paid from the respondent, if the stay is refused and the appeal succeeds but the judgment has been enforced in the meantime?  On the other hand, what are the risks that the respondent will be unable to enforce the judgment as a result of assets having been dissipated during the interim period between stay and the determination of the appeal, if a stay is granted and the appeal fails?  To guard against such risks of injustice, the court may impose conditions, such as payment of the judgment sum or such part of it into court or furnishing adequate securities by either or both parties.

5.  Mr Yu SC, leading counsel for the Defendants, submits that the principles discussed in Hammond Suddard and the line of authorities cited by Mr Chan SC, leading counsel for the Plaintiff, are not relevant as Hammond Suddard is a decision based on the CPR rules 52.3 and 52.9 in the United Kingdom (“UK”) of which there are no equivalents under our Rules of the High Court.  CPR rule 52.3 provides that permission to appeal is required in a case such as that one before the UK Court of Appeal.  CPR 52.9 is about payment of or security for the judgment debt as a condition for permitting an applicant to proceed with his appeal.  In the present case, leave to appeal is not required.  The Defendants may appeal as of right. 

6.  With respect, the distinction is more apparent than real.  The requirement under CPR rule 52.3 would be met by the applicant showing the existence of a strong ground of appeal or strong likelihood of success on appeal.  The same is required under our legal principles even in the absence of an equivalent provision under the Rules of the High Court.  Putting CPR rule 52.3 aside, the legal principles applicable to stay of execution under the law in the UK and in Hong Kong are the same. The Hong Kong court’s power to impose conditions when ordering a stay of execution is practically the same as its counterpart’s in the UK under CPR rule 52.9.  There is no reason why the rationale behind the legal principles applicable to CPR rule 52.9 should be any different from those for granting conditional stay of execution in Hong Kong.  The applicable legal principles must also be the same.

7.  A commonly recognized good reason for granting a stay of execution is that an appeal will be stifled or rendered nugatory without a stay.  The most common ground relied on by the applicant is its own impecuniosity.  A judgment on the merits has been obtained against the applicant.  As the starting point is that a litigant is entitled to have the fruits of his litigation, the applicant not only has the burden of showing that his appeal will be stifled without a stay, he has to adduce compelling evidence in support and he has to be full and frank in his evidence.  He may not disclose just partial or superficial facts and let the truth be hidden in what is untold.  He has to adduce cogent evidence that there is a real risk of injustice if enforcement is allowed to take place.

8.  In considering the applicant’s impecuniosity, the court does not just look at the balance sheet or the means of the applicant alone, but also considers whether the applicant has other resources or access to other resources which would enable it to pay the judgment debt: see Hammond Suddard[4], Sunico[5]and Hearst Holdings Inc & Anor v AVELA Inc & Ors[6].  Mr Yu SC referred to my previous decision in this case[7] in which I declined to extend the principle in Yesland Limited & Others and China Furniture City Limited[8] of requiring a company’s directors and shareholders to provide security for costs in such an application to an application for stay of execution because of the principle of corporate personality.  I was not informed of the Hammond Suddard line of authorities which are directly on the point.  My previous decision was obviously per incuriam.

9.  In an appropriate case, it is open to the court to also look at the means of those behind the applicant who have an interest in the appeal, such as its backers and those who have been funding the litigation, or in the case of a company, its shareholders and directors.  These people clearly have an interest in the appeal succeeding.  They are also the best judges (and, in my view, even better judges than the applicant’s legal team) of the chance of success of their appeal and the risk of prejudice.  If even these interested people would not lend financial support to the applicant in prosecuting the appeal, it may well be that they are not as optimistic about the chance of success as represented by the applicant to the court.  Of course, that may well be a commercial decision than anything else after balancing their view of the prospect of success against the costs of pursuing the appeal including paying the judgment debt if stay is denied and having to pay further adverse costs if they lose. 

The grounds of appeal

10.  The Defendants’ notice of appeal is a 49-page document containing 79 paragraphs attacking almost every one of my decisions in the Remitter Judgment.  I shall comment briefly on what appears to be the strongest grounds relied on by the Defendants.

11.  First, the Defendants complain that the Plaintiff should not have been permitted to run a new case.  I have dealt with this issue fully under the sub-heading of “Whether First Laser is running a new case beyond the remitter” in paragraphs 97 to 101 of the Remitter Judgment.  I am conscious of the fact that the Plaintiff’s claim is founded on a new or different agreement, but this agreement is precisely what formed the basis of the restitution claim which is remitted to this court for determination.  The factual basis of the Plaintiff’s claim is the same First Laser Agreement, the Hang Wo Agreement, the COM Agreement (collectively, the “three agreements”) and the 1998 Memorandum which were held by the Supreme People’s Court and the Court of Final Appeal to be of no effect.  There is no substance in this ground of appeal.

12.  Second, the Defendants complain about a lack of pleading of the existence of the nominee investment agreement.  I recognise the force of this argument at the remitter hearing.  I did not shy away from the fact that the Plaintiff’s pleading is unsatisfactory.  I have dealt with this issue fully under the sub-headings of “What has First Laser to plead and prove” and “Has First Laser’s case been adequately pleaded”in particular in paragraphs 102 to 116 of the Remitter Judgment.  There are two thrusts in the Defendants’ complaint.  First, they argue that the Plaintiff has to plead and prove that it has obtained a finding by a Mainland court that the nominee investment contract was of no effect.  I disagree with such a restrictive view and have dealt with it fully in paragraphs 104 and 105 of the Remitter Judgment.  Second, the Defendants complain that the Plaintiff’s case has not been adequately pleaded.  The difficulties facing by the Plaintiff were caused by the fact that the action commenced 19 years ago on a different basis or claim and that there was a change in the Mainland law in the meantime.  I have dealt with this complaint fully in paragraphs 107 to 116 of the Remitter Judgment.  There is no doubt that First Laser has impliedly pleaded a nominee investment contract and the Defendants knew what case it had to meet and responded appropriately.  The Defendants have not been prejudiced. This complaint is highly technical and artificial.

13.  Third, the Defendants complain that there was an absence of primary evidence as to the existence of the nominee investment agreement.  I have considered such evidence fully in paragraphs 183 to 202 of the Remitter Judgment.  A “nominee investment agreement” is a legal concept under Mainland law.  There is incontrovertible evidence on which the existence of the nominee investment agreement may be inferred.  I have fairly considered the expert evidence of the parties and accepted the evidence of the Plaintiff’s expert.  That is a finding of fact, which cannot be said to be palpably wrong.

14.  Fourth, the Defendants complain that this court erred in holding that there was no need for a prior ruling that the nominee investment is void.  I have dealt with this in paragraphs 102 to 116, 205 and 206 of the Remitter Judgment.  The remitter was predicated upon the three agreements and the 1998 Memorandum all being held void.  These facts are not disputed.  As the nominee investment agreement stands or falls with these three agreements, it must necessarily be void and of no effect.  For reasons as explained in paragraphs 102 to 116 of the Remitter Judgment, there is no basis in the Defendants’ argument that this court has no jurisdiction to make a finding on whether the nominee investment agreement was void and that the nominee investment agreement must have been found to be void by a Mainland court before this court has jurisdiction to order restitution.

15.  Fifth, the Defendants heavily attack the Remitter Judgment on the basis that this court has made findings which are incompatible or inconsistent with previous ruling and/or finding of the Court of Final Appeal.  In paragraph 147 of the Remitter Judgment, I have reminded myself that the findings of the Court of Final Appeal are binding on me and have steered carefully within permitted waters.  In paragraphs 147 to 172, I considered the five findings of the Court of Final Appeal.  I accepted those findings and did no more than explaining the truth underlying those findings which is fully supported by incontrovertible evidence and evidence from the Defendants.

16.  In particular, the Defendants attack paragraph 133 of the Remitter Judgment in that my finding of the spirit of the First Laser Agreement is inconsistent with the Lord Collins NPJ’s finding that “the overall picture is that the terms of the joint venture agreement were never agreed and that decisions were made on ad hoc basis; and that the parties/ relationships were constantly shifting”.  That the terms of the joint venture agreement were never agreed does not mean that there was no agreement in principle reached or that the spirit of the First Laser Agreement could not exist.  The fact that decisions were made along the lines of the First Laser Agreement on ad hoc basis is evidence of the existence of the spirit of the First Laser Agreement.  The 1998 Memorandum expressly mentioned “the spirit of the First Laser Agreement”.  It is the best documentary evidence of the existence of the spirit of the First Laser Agreement.  From the paragraphs I quoted above, it can be seen that the parties conducted their affairs in accordance with the spirit of the First Laser Agreement.

17.  In my view, the grounds are no more than repetitions of arguments already considered and rejected by this court after careful deliberation.  I am not satisfied that there is any substance in these grounds of appeal.  I am conscious of the difficulties of being one’s own judge.  Since leave to appeal is not required, I respect the Defendants’ right to appeal.  I am prepared to proceed on the basis that the Defendants have an arguable appeal.  But, in my view, no palpable errors have been identified by the Defendants.  I am unable to come to any view that there is such a strong likelihood of success in this appeal that upon sight of the grounds of appeal the Defendant is entitled to an unconditional stay.  This appeal is not one for which the successful Plaintiff should be delayed of its fruits of the litigation.  The Defendants are at best only entitled to a conditional stay of execution.

FEHC’s resources or access to resources

18.  The Defendants argue that in the absence of any stay of execution pending appeal, they would suffer deleterious consequences rendering the appeal nugatory.  They rely on the financial reports of FEHC and Jian An for the year ended 31 December 2019 (respectively, the “2019 FEHC Report” and “2019 JA Report”) and 31 December 2018 (respectively, the “2018 FEHC Report” and “2018 JA Report”). 

19.  The financial position of FEHC for the three years ending 31 December 2017, 2018 and 2019 as shown in the 2018 and 2019 FEHC Reports is as follows:

	Note	2019  (HK$)	2018 (HK$)	2017 (HK$)
Asset
Fixed asset:
Motor car		901,082	335,680	475,159
Properties		236,714	249,470	262,227
Investment in subsidiaries	12	100	100	100
Current asset:
Cash at bank		337,845	432,014	194,094
Receivables	13	2,091,176	2,058,596	2,029,693
Total asset:		3,566,919	3,075,862	2,961,273
Liabilities
Capital and reserves		30,000,000	30,000,000	30,000,000
Accumulated loss		-2,326,964,749	-2,323,452,679	-2,357,592,787
Deficit in net asset		-2,296,964,749	-2,293,452,679	-2,327,592,787
Accounts payable	16	-1,516,021,156	-1,512,018,030	-1,546,043,550
Estimated liabilities	17	-784,510,511	-784,510,511	-784,510,511
Total liabilities		-2,300,531,668	-2,296,528,542	2,330,554,061

20.  These reports paint a hopelessly impecunious picture with a deficit in net asset in the amount of HK$2,296,964,749 for the year ending 31 December 2019.  The deficit consists of accounts payable and estimated liabilities in the total amount of HK$2,300,531,668 less total assets of HK$3,566,919. 

21.  Both the 2019 and 2018 FEHC Reports are qualified reports in one very important respect in the circumstances of this case.  The auditors expressed reservation because FEHC did not disclose the consolidated financial statements of its subsidiaries.  The reasons for non-disclosure as stated in Note 12 of the 2019 and 2018 FEHC Reports are that no shareholders had indicated disagreement with the directors’ opinion; that preparation of consolidated financial statements would occasion delay and expenses; and that the consolidated financial statements would not be of significant value to the shareholders.  These may well be good reasons for non-disclosure from FEHC’s shareholders’ point of view.  But, in the context of FEHC’s application for stay, financial information of the subsidiaries is particularly important from this court’s point of view, since practically all the deficits of FEHC are debts and liabilities of its subsidiaries and FEHC is relying on its impecuniosity as a ground for stay. 

22.  However, what is untold in notes 12, 13, 16, 17 and 19 is of significance.  Notes 12 and 13 provide as follows:

Note	Description	2019 (HK$)	2018 (HK$)	2017 (HK$)
12	Investment in subsidiaries:
	Unlisted companies at costs	56,554,415	56,554,415	56,554,415
	Depreciation	-56,554,315	-56,554,315	-56,554,315
	Net investment	100	100	100
13	Receivables:
	Receivables	223,296,737	223,267,111	223,257,848
	Deposits & other receivables	513,112	514,998	514,998
	Receivables from subsidiaries	546,395,970	546,391,130	546,371,490
	Total receivables	770,205,820	770,173,240	770,144,337
	Provisions for bad debts	768,114,644	768,114,644	768,114,644
	Net receivables	2,091,176	2,058,596	2,029,693

The first thing to note is that all but HK$100 investment in the subsidiaries are written off, a sum of more than HK$56 million.  Second, almost all receivables from the subsidiaries are discounted as provisions for bad debts.  Without a consolidated statement, there is no information as to which are the subsidiaries, what are the receivables, why are the receivables not recoverable and why are the provisions for bad debts made. Note 13 appears to be a convenient way of reducing assets of HK$770 million to just HK$2 million.  It does not appear convincing.  These notes raise serious questions as to the true financial position of FEHC. 

23.  Note 16 provides details of trading debts and other accounts payable in the sum of HK$1,516 million.  These liabilities are as follows:

Note	Description	2019 (HK$)	2018 (HK$)	2017 (HK$)
16	Interest payable	659,284,851	659,284,851	659,284,851
	Account payable and fees	58,731,884	54,075,261	53,802,307
	Secured short term loans	466,886,188	466,886,188	499,755,205
	Loans by shareholders	240,862,381	240,862,381	240,862,381
	Current account with subsidiaries	90,255,850	90,909,348	92,338,804
	Total:	1,516,021,156	1,512,018,030	1,546,043,550

Absent explanation, this note does not make sense.   

24.  The total indebtedness as at 31 December 2019 was HK$1,516 million, of which HK$659 million was attributable to interest.  Capital indebtedness was HK$857 million.  The interest payable is a staggering amount equivalent to 76.90% of the capital indebtedness.  It is not known over what period of time was this amount of interest accumulated.  But, what is remarkable is that the interest payable for 2019 is identical to the amount payable in 2018 and 2017.  Was the amount just carried over from 2017 and that no interest was charged since 2017 or even earlier?  Were the loans interest free?  Since when were interest charged?  How was this huge amount of interest calculated or accumulated?  Information is totally lacking.  The interest payable is not supported by any consolidated financial statement.  It appears to be a convenient figure to boost up impecuniosity.

25.  The amount of secured short term loans also raises problem.  These loans totalled HK$466 million.  Since these are secured loans, there must be assets worth more than HK$466 million owned by FEHC being used as security for the loans.  But no such assets are shown in the 2019 FEHC Report.  As discussed below in relation to Note 17, these short term loans were probably bank loans assumed by Fujian Development and indemnified by FEHC.  Again, without a consolidated financial statement, there is no way to know.

26.  According to Note 19, FEHC mortgaged some assets of its subsidiaries worth HK$49 million at costs with Fujian Development as security for the short term loans.  This security could not support short term loans of HK$466 million.  This observation also casts serious doubts on the credibility of the interest and assets as reported in FEHC’s 2019 Report and 2018 Report.

27.  FEHC’s 2019 Report and 2018 Reports were prepared by qualified auditors.  I do not pretend to be qualified to challenge their reports.  On the face, the reports raise numerous apparently unanswerable questions relating to the indebtedness of FEHC’s subsidiaries.  The auditors have expressed reservation in the reports because of FEHC’s deliberate decision not to produce consolidated financial statements with its subsidiaries.  In this case, it is the indebtedness of the subsidiaries which formed the basis of FEHC’s case of impecuniosity for resisting execution.  Perhaps, there may be good answers to the questions I raised.  FEHC’s company secretary who exhibited the reports did not deal with these obviously questionable points in his affirmation.  The applicant for stay of execution bears the burden of proving on cogent evidence that it would suffer deleterious effect if no stay is granted.  FEHC presented financial reports which on the face are of questionable credibility.  They are inherently incredible.  FEHC has been less than full and frank in its evidence.  I can give those reports little weight.

28.  The 2019 JA Report and 2018 JA Report shows that Jian An had no business activities for those two years, fixed assets of HK$100,250 and accumulated loss and debt payable to a related company of HK$138 million.  Jian An is a window company with no trading.  The question which immediately arises is how was this staggering loss incurred.  Note 8 which purports to explain the loss actually offered no explanation or details.  Note 9 indicates that the amount is an inter-company debt.  It is not known who is the inter-company creditor.  The reports do not show a true and fair picture of the financial position of Jian An.  Jian An’s evidence has not been full and frank also.  I can give those reports little weight.

The backers behind the Defendants

29.  Note 17 of the 2019 FEHC Report is interesting.  It reads:

「預計負債

本公司、附屬公司及華閩投資發展有限公司（「華閩發展」）簽定協議書，華閩發展同意為本公司之附屬公司償還銀行債務（「債務」），銀行將有關債務權益轉讓予華閩發展，同時本公司向華閩發展作出擔保，保証華閩發展不會因附屬公司沒有能力償還有關債務而引致損失。由於附屬公司已蒙受嚴重損失，沒有能力償還有關債務，因此董事會為此承擔作全數預提。此外，本公司於往年度出售一附屬公司權益，由於原訴人聲稱擁有該投資百份之五十一權益，本公司被指非法出售股權，基於穩健的情況下，管理層把百份之五十一投資收益記錄在預計負債上。」

Translation

“Estimated liabilities

FEHC, its subsidiaries and Fujian Investment and Development Company Limited. (“Fujian Development”) had signed an agreement under which Fujian Development agreed to repay debts owed by FEHC's subsidiaries to the banks (“debts”). The banks transferred their rights under the debts to Fujian Development. At the same time FEHC guarantees Fujian Development that Fujian Development would not incur losses as a result of the inability of FEHC’s subsidiaries to repay the relevant debts. Since the subsidiaries have suffered severe losses and are unable to repay their debts, the board of directors (of FEHC) undertakes to make full provision for these relevant debts. In addition, FEHC had sold its interest in one subsidiary company in the previous years. As a plaintiff claimed to have 51% interest in that subsidiary, FEHC was accused of illegally selling the equity in that subsidiary. As a matter of prudence, the management recorded 51% of the proceeds of sale as estimated liabilities.”

This note is repeated in the 2018 FEHC Report.

30.  This note suggests that there are financial backers behind FEHC.  It is not known what is the relationship between Fujian Development and FEHC.  According to the note, Fujian Development agreed with the banks to repay the loans owed by FEHC’s subsidiaries, while the board of directors of FEHC undertook to indemnify Fujian Development of its loss.  All these companies are inter-related.  Fujian Development is probably a company with higher credit rating than FEHC.  It may be an associated company within the group of companies under the control of the Fujian Provincial Government. On the other hand, the indemnity was stated to be given by the board of directors of FEHC and not by FEHC.  It must have been given by the directors in their personal capacity.  There is no dispute that the shareholders and directors of FEHC are provincial officials holding shares or office in FEHC as nominees of the Fujian Provincial Government.  They have no personal interest in FEHC.  Thus, when they undertook to make full provision for the debts of the subsidiaries, they must have done so as agents of the Fujian Provincial Government.  The debts of the subsidiaries are backed by Fujian Development, and in turn by FEHC and its board of directors who will ultimately be backed by the Fujian Provincial Government.

31.  On paper, FEHC and Jian An are hopelessly impecunious and in deficit to the extent of HK$2,300 million.  Yet they are able to engage in this long and wasting litigation in the past 19 years, instructing a strong legal team with top senior and junior counsel.  According to FEHC, it had hitherto incurred legal costs of over HK$28.86 million.  But no attempt has been made to explain how this litigation is being funded.  The existence of financial backers behind FEHC is obvious.  Again, the Defendants have been less than full and frank in their evidence.

32.  I have already commented on the audited reports of FEHC and Jian An.  I do not accept them as evidence of the true financial position of FEHC and Jian An.  Even according to the FEHC 2019 Report, FEHC has receivables of HK$770 million which it almost entirely discounted by provision for bad debts of HK$768 million.  It should be noted from Note 17 discussed above that FEHC’s estimated liabilities included provision for First Laser’s claim of 51% of the sale proceeds of the FCL. Thus, even on the basis of the 2019 FEHC Report, the receivables are more than sufficient to cover the judgment debt under the Remitter Judgment.

33.  FEHC never explained what happened to the proceeds of sale of the FCL shares.  It should be recalled that all except US$9 million paid into court had been remitted to the Fujian Provincial Government.  That included a sum of US$5 million remitted after service on FEHC of the Plaintiff’s summons applying for injunction.  At the hearing in 2008, the Defendants submitted that the proceeds remitted was for restructuring.  In rejecting that argument, I held at paragraph 14 of my decision[9]:

“14. … On the evidence now available to me, it appears that what those behind the Defendants have done is to strip the Defendants of their assets and then to restructure them in such manner as to leave the Plaintiff with an empty judgment and without the Plaintiff being given the benefit of participating in the restructuring at all. Save that US$51 million had been transferred to the Fujian Provincial Government, I am not satisfied as to the purpose of the transfer and I am far from being satisfied that there was any restructuring negotiation underway. I reject Mr Shieh SC’s submission of deleterious effect.”

34.  The Defendants now argue that they are window companies of the Fujian Provincial Government.  Their function is to remit money to the Fujian Provincial Government.  I also reject that argument.  However laudable be their function, that does not explain how FEHC could have lawfully dissipated US$51 million of its own assets to the Fujian Provincial Government, apparently for no consideration and without regard to the rights of its creditors.  Such conduct is evidence that FEHC was acting in concert with the Fujian Provincial Government on which the inference could be drawn that the government has a reciprocal arrangement to back FEHC in its litigation relating to the funds remitted. 

35.  All in all, I am satisfied that the Defendants are not alone in this litigation.  They are backed ultimately by the Fujian Provincial Government.  Whether the government will in fact do so at this stage of the proceedings is its commercial decision.

Whether appeal will be rendered nugatory

36.  The litigation has been fought almost for 20 years.  It has gone all the way up to the Court of Final Appeal and is about to embark on a second similar journey.  However, this time the situation is different.  No stone has been left unturned.  The Plaintiff’s case under restitution is on firmer grounds.  No strong grounds of appeal have been shown.  The Plaintiff is entitled to have the fruits of its litigation.  I respect the Defendants’ right to appeal.  I shall consider the prejudice to the Defendants first assuming no stay is granted and then the prejudice to First Laser if conditional stay is granted.

37.  The Defendants contend that they are so impecunious that they cannot meet any conditions of full or partial payment of the judgment debt imposed on a conditional stay.  They argue that imposing such a condition effectively means that the Plaintiff will be able to levy execution against them leading to their winding-up and thereby rendering the appeal nugatory.  I disagree. On their own case, the Defendants are impecunious.  They cannot pursue the appeal without financial support from their backers.  The Fujian Provincial Government has to come forth to fund the appeal, regardless whether a stay is granted.  Thus, even if FEHC is to be wound-up, if it is able to satisfy the liquidators that it has a meritorious appeal (which is a condition precedent to an appeal even from FEHC’s own point of view) and if the Fujian Provincial Government will come forth to fund the appeal (which it must in any event because of FEHC’s impecuniosity) and indemnify the liquidators of the costs, the appeal may still proceed.  It will not be rendered nugatory, if the appeal succeeds.  The Defendants are concerned that the Plaintiff is a foreign corporation with no assets in Hong Kong and that any sum levied against them may not be recoverable if the appeal is successful.  Their concern can be easily addressed by ordering any sum paid or levied in execution be paid into court.

38.  The only prejudice I can think of is that their backers would have, in addition to fund the appeal, to indemnify the liquidators of their costs, if the appeal fails.  This is the usually consequence of a failure.  The Defendants cannot expect to walk out of an unsuccessful appeal without costs consequences.  Neither can their backers.  To argue that they can walk out without costs consequence by relying on FEHC’s impecuniosity is in fact a prejudice to the Plaintiff which this court cannot ignore.  The Defendants’ and their backers’ position will most likely be the same, even if a stay is refused.  They will suffer no prejudice.

39.  On the other hand, if an unconditional stay is granted, the litigation will carry on for a few more years.  Further costs will be incurred by both parties.  If the appeal is successful, First Laser would be rightly deprived of its fruits of litigation obtained at this stage of the proceedings.  It only has itself to blame for all further costs incurred.  The Defendants would win the appeal.  Neither party would suffer any prejudice.

40.  If the appeal fails, the Plaintiff would have been wrongfully denied of the fruits of its litigation.  It would have been kept out of whatever money it could have recovered at this stage.  Not only that, the Defendants are impecunious.  Mr Yu SC argues that that would make no difference because the Defendants are all along impecunious.  I respectfully disagree.  The Plaintiff would have to incur more costs on appeal which would be irrecoverable because the Defendants are impecunious now and would be so at the conclusion of the appeal.  But, not only that, with passage of time, whatever assets now in the hands of the Defendants which would be available for execution would have disappeared lawfully in funding the appeal which turned out to be unmeritorious and would perhaps have been wrongfully dissipated.  The Defendants’ disclosure of their financial position has been less than full and frank.  They have demonstrated a propensity to dissipate their assets even in the face of an injunction.  Without a conditional stay, most probably, the Defendants would literally walk out of an unsuccessful appeal relying on their own impecuniosity.  But the Plaintiff would suffer severe and irreparable prejudice.

41.  Thus, the balance weighs heavily in favour of refusing the application for unconditional stay of execution and granting a stay on condition of payment or furnishing security into court of the full judgment debt including interest less US$9 million and accumulated interest which has already been paid into court or failing that on payment into court of all sums levied on execution.  The sum to be paid is rounded down to HK$518 million. Of course, the Defendants and their backers have the option of not meeting the condition for commercial consideration and thereby confining the loss to the assets in the hands of the Defendants and saving the risk of loss to the backers.

Conclusion

42.  For the above reasons, I refuse the Defendants’ application for unconditional stay of execution and order that the execution be stayed on condition of payment or furnishing security of HK$518 million into court less the said sum of US$9 million and accumulated interest within 28 days or failing that on payment into court of all sums levied on execution.  The Defendants shall pay the Plaintiff’s costs of this application with certificate for two counsel, to be taxed if not agreed.