SONG LIAN ZHONG AND OTHERS v. CHAN SZE WAN AND OTHERS

CACV 135/2017

[2018] HKCA 359

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 135 OF 2017

(ON APPEAL FROM HCA NO. 277 OF 2013)

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D E C I S I O N

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Hon Cheung JA (giving the Decision of the Court) :

1.  On 23 May 2017 Recorder Teresa Cheng SC gave judgment against the defendants as follows :

1)   the 1^st plaintiff be declared to be the rightful owner of the 46% shareholding in China NTG Investments Ltd (中騰環保科技投資有限公司) (‘CNTG BVI’) collectively held by the defendants themselves and/or their trustees and/or their nominees, on trust for the 1^st plaintiff;

2)  the defendants and/or their trustees and/or their nominees do forthwith transfer the 46% shareholding in CNTG BVI to the 1^st plaintiff;

3)  the 1^st plaintiff be declared to be the rightful owner of any other direct or indirect interests of CNTG BVI (or any of its subsidiaries) dealing in the business of supplying natural gas in certain provinces and localities in Mainland China (‘the Project’);

4)  the defendants and/or their trustees and/or their nominees do forthwith transfer the said interests in the project to the 1^st plaintiff;

5)  there be liberty to apply in respect of the implementation of paragraphs 1 to 4 above;

6)  the 2^nd and 3^rd plaintiffs’ claim against the defendants for a sum of RMB130 million or its equivalent in Hong Kong dollars be dismissed;

7)  the 2^nd plaintiff’s application for damages be dismissed; and

8)  there be costs order nisi that the defendants do pay the plaintiffs’ costs of this action, to be taxed if not agreed.  

2.   On 19 June 2017 the 1^st, 3^rd and 4^th defendants (collectively ‘the defendants’) who previously were represented by lawyers at the trial lodged a notice of appeal in person.

3.   On 9 February 2018 the defendants issued summonses directly to this Court seeking a stay of the judgment pending the determination of their appeals to this Court.  We will deal with the application on paper.

4.   Stay of execution pending appeal is provided for by Order 59, rule 13 of the Rules of the High Court.  Order 59, rule 14(4) further provides:

‘ Wherever under these rules an application may be made either to the court below or to the Court of Appeal, it shall not be made in the first instance to the Court of Appeal, except where there are special circumstances which make it impossible or impracticable to apply to the court below.’

5.   The defendants’ explanation for not applying before the Judge for the stay was because they were acting in person and initially they were under the impression that the execution of the judgment would be stayed as of right once the notice of appeal was filed.  On 10 January 2018 they received a demand letter from the 1^st plaintiff’s solicitors, requesting a transfer of the shares of the 1^st plaintiff pursuant to the judgment.  They replied that since the appeal has yet to be heard, the transfer of shares should only be done upon the hearing of the appeal.  On 22 January 2018 the 1^st plaintiff’s lawyers threatened to commence enforcement action unless the execution of the judgment was stayed.  It was only then that they realised an application for stay was necessary. They immediately issued the summonses for stay.  But by then the Judge had taken up the post of Secretary for Justice and it was impracticable to apply to her for a stay of the judgment. 

6.   In our view the defendants had misunderstood the requirement.  The requirement is that the application should in the first instance be made in the Court below.  The Court below is the Court of First Instance.  The fact that the Judge who heard the case is no longer available to deal with the matter does not mean that it is impossible or impracticable to have the matter heard by another judge of the Court of First Instance.    But bearing in mind the defendants are now acting in person, we will deal with the matter since we are seized with the application. 

7.   The test for a stay of execution of the judgment pending appeal is whether the appeal will be rendered nugatory if the order for stay is not made.  Where it is demonstrated that an appeal would be rendered nugatory if a stay was not granted, the Court may require no more than the existence of a reasonably arguable appeal.  An example of an appeal being rendered nugatory is the presence of appreciable risk that if the judgment is successfully enforced, the respondent to the appeal would not be able to repay in the event of a successful appeal or there may be difficulties to reverse the acts that had been done under the judgment.  Such risk is greater in a case where the respondent is not residing within the jurisdiction. The 1^st plaintiff is said to be a Hong Kong resident.  However there is evidence showing that he is a Chinese national residing in the Mainland.  The evidence showed that he did not attend the trial in person and his evidence was given by video link.  The defendants said that the 1^st plaintiff could not attend the hearing below because he was not allowed to leave the Mainland.  The 1^st plaintiff said that the restriction imposed on him from leaving the Mainland had been lifted and he had been travelling to Hong Kong a number of times.  He said he has a residential address in Hong Kong and he produced a copy of the land registration record of his property. 

8.   The 1^st plaintiff in his affirmation filed in opposition to the stay did not expressly give the address of his residence, contrary to Order 41, rule 1(4) of the Rules of the High Court.  The duty to ensure the affirmation is in the proper form lies squarely with the solicitors who prepared it.  This requirement must be strictly adhered to.  The 1^st plaintiff merely stated that the defendants knew his residential address and produced the land registration record of his property. Although the 1^st plaintiff has a property in Hong Kong it does not mean that he is residing in Hong Kong because as a matter of fact, in the 2017 Annual Return of the company China NTG Investment Limited (‘exhibit SLZ-1’) attached to the 1^st plaintiff’s affirmation, he declared his residential address to be Room 301, 9^th Building, Shenzhen Software Park, Keji Zhong 2^nd Road, Nanshan District, Shenzhen.

9.  Further, the mere fact that the 1^st plaintiff has a property in Hong Kong does not mean that the appeal would not be rendered nugatory because the judgment that was made against the defendants is for the transfer of their shares in CNTG BVI (or any of its subsidiaries) to the 1^st plaintiff.  If the 1^st plaintiff is not residing in Hong Kong, the defendants may well encounter difficulties in pursuing the 1^st plaintiff in order to recover the transferred shares.

10.  It is not necessary for us to dwell into the merits of the appeal in details.  Suffice to say that we are not prepared to say that the appeal to be wholly unarguable.  We are satisfied that the defendants have satisfied the threshold for a stay.  In any event, the 1^st plaintiff has not put forward any argument that he will suffer prejudice in the event the appeal is dismissed should a stay of execution be imposed. 

11.  As the appeal is now set down to be heard on 3‑4 October 2018, in order to ensure that the interests of the parties are fully recognised, we will order a stay of the execution of the judgment conditional upon the defendants’ undertaking that they would not dispose of or transfer or mortgage their respective shares pending the determination of the appeal.  For the purpose of giving the undertaking, the 1^st, 3^rd and 4^th defendants shall within seven days from the handing down of this Decision file with the Court, and serve on the 1^st plaintiff their written undertakings that they will not dispose of, transfer or mortgage their respective shares in CNTG BVI until after the determination of this appeal or otherwise ordered by the Court.

12.  The costs of this application be in the cause of the appeal.