LI LIM CHI DOROTHY, THE SOLE ADMINISTRATRIX OF THE ESTATE OF LI WAN LUNG, DECEASED v. LIN FUNG INDUSTRIAL CO AND ANOTHER

HCMP 1695/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1695 OF 2015

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REASONS FOR DECISION

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1.  This is an application for stay of execution of the order (“the Order”) made by DHCJ Le Pichon (“the Judge”) on 12 October 2016 pending appeal. In the hearing on 14 November 2016, I dismissed the application. I now give my reasons.

2.  In this Reasons for Decision, I adopt the same abbreviations that the Judge used in her Reasons for Judgment dated 17 October 2016 (“the Judgment”).

3.  This is an O85 action, and the Order requires the 2^nd Respondent to: (i) forthwith take all necessary steps to procure the Applicant be registered as the sole proprietor of New Lin Fung; and (ii) provide the Applicant with all documents relating to the 1^st Respondent within 28 days.

4.  The background of this case has been fully set out in the Judgment and I do not want to repeat the same here.

5.  The principles applicable to an application for stay of execution pending appeal are set out in the landmark decision of Star Play v Bess Fashion Management Co Ltd[1]. The court has a discretion whether to grant a stay of execution.  The essential question is whether there is good reason to stay the execution, which commonly requires a consideration of:

(i) the merits of the appeal; and

(ii) whether the absence or existence of a stay would render an appeal nugatory.

6.  Apart from the merits of the appeal, the main reasons given by the 2^nd Respondent to support the stay application are that: (i) minimal prejudice would be caused to the Applicant if a stay is granted; and (ii) there is a risk of him held accountable in the Mainland for having used the business chops of the Old Lin Fung after setting up the New Lin Fung.

7.  I reject these arguments.  The 2^nd Respondent’s argument on no prejudice is based on the assumption that there are no assets of the estate in the Mainland except the machinery which the 2^nd Respondent says are of scrap value only and can be transferred without the Order being executed.  However, there is no basis to suppose that there are no assets other than the machinery.

8.  In the Judgment, the Judge held that:

(i) the business of the deceased forms an asset of the estate;[2]

(ii) Old Lin Fung (the business of the deceased) had assets in the Mainland that are now registered in the name of New Lin Fung, and the question whether the machinery will ultimately be found to be the property of Old Lin Fung is not the relevant question;[3]

(iii) the possibility of there being assets other than the machinery was expressly adverted to in the Judgment, but the court was not required to determine the existence of ownership of any such assets;[4]

(iv) it was only necessary to show a prima facie case that the estate (through Old Lin Fung) owned some assets in the Mainland, and for this purpose the focus was solely on the machinery, as to which a prima facie case was shown;[5] and

(v) it is essential that the Applicant be registered as sole proprietor of New Lin Fung so that she can collect or assert the estate’s right to any assets of the deceased in the Mainland acquired or held in the name of New Lin Fung.[6]

9.  I do not accept that there would be no prejudice to the Applicant if the court were to grant a stay.  It is clear that there would be delay in ascertaining, collecting or preserving the assets of the estate in the Mainland unless and until the Order has been executed.  Any such delay in the administration of the estate should be avoided in the absence of good reasons which there are none in the present case.

10.  As to the risk of the 2^nd Respondent being held accountable in the Mainland for having used the business chops of Old Lin Fung, I also do not find it to be a valid argument to oppose the stay application.

11.  First, it was no part of the 2^nd Respondent’s case at the hearing before the Judge that the court ought to exercise its discretion against making the Order because it might lead to the possibility of the 2^nd Respondent being held liable for the past misdeeds in the Mainland.  Even in his 3^rd Affirmation in support of the stay application, the 2^nd Respondent merely says that he had a long standing desire to cease trading New Lin Fung, and he does not say this was tied to any perception of a risk that the 2^nd Respondent might be exposed to proceedings in the Mainland.  In the absence of such complaint in the original hearing, the 2^nd Respondent cannot now rely on the same reason to ask the court to grant a stay.

12.  Second, insofar as the 2^nd Respondent suggests that he would suffer prejudice without a stay, the risk of proceedings being brought against him in the Mainland arises not from the making or execution of the Order, but from the fact of his own past conduct.  It lies ill in his mouth to say that the Order should not be executed merely because it might increase any risk of being investigated for his own past misconduct.  In any event, there is no evidence before the court to suggest that execution of the Order would have that effect, or that a stay would remove the risk of which he now claims.

13.  For the above reasons, I do not find that the refusal of a stay would render the appeal nugatory.  On the contrary, the 2^nd Respondent has clearly indicated that he has no intention to continue operating the business under the name of New Lin Fung.  The making of the Order would entitle the Applicant to investigate and ascertain which of the assets in the factory in the Mainland belong to the estate.  If the Judgment is reversed on appeal, there should be no prejudice to the 2^nd Respondent as he has no intention to run the business in any event.

14.  The court also has to consider the merits of the appeal.

15.  In this regard, I must confess that I have some concern when I first read the Judgment.  The Judge seemed to accept that some of the assets under the business of New Lin Fung may not belong to the estate.  In such case, the ordering of the transfer of the business registration of New Lin Fung may entitle the Applicant to claim ownership over assets which may not belong to the estate.  That part of the Order, i.e. the order requiring the transfer of business registration, may simply be too wide.

16.  However, it is clear from the Judgment that the Judge accepted that the business of the deceased forms an asset of the estate, a conclusion which in my judgment must be right.  The 2^nd Respondent used the business chops of Old Lin Fung to apply for the business registration of New Lin Fung, with a view to continue the deceased’s business using the new business registration of New Lin Fung.  It is certainly arguable that the 2^nd Respondent operated the business under New Lin Fung as a representative of the estate.  At the very least, the estate has an interest in the assets of the deceased used by the 2^nd Respondent in operating the business under New Lin Fung after the death of the deceased.  The Judge, having considered all the evidence in the present case and in particular the legal opinion on Mainland law, found that the only way to enable the Applicant to investigate and to collect the assets of the deceased in the Mainland is for him to be registered as the proprietor of New Lin Fung.  Based on these circumstances, there is some basis for the Judge to make the Order, in particular the 2^nd Respondent has indicated clear intention not to run the business any further.

17.  In Star Play[7], Ma J (as he then was) has stated clearly that the court should not go deeply into the merits and strengths of an appeal in a stay application.  The existence of merely an arguable appeal cannot by itself amount to sufficient reason to justify a stay.

18.  Having considered the arguments before me, I am satisfied that the 2^nd Respondent only has an arguable appeal and its merits is not strong enough to amount to a good reason to justify a stay.

19.  For the above reasons, I dismissed the application at the hearing.

20.  I ordered that the costs of the stay application be the Applicant’s costs in the cause of the appeal.  If the Applicant succeeds in the appeal, there is no question that she should get the costs of the stay application.  On the other hand, even if the 2^nd Respondent succeeds in the appeal, I take the view that he should not get the costs of the stay application as he fails to convince the court to order a stay.

21.  These are the reasons for the decision I made in the hearing.