WELLTUS LTD v. FORNTON KNITTING CO LTD

HCA 349/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 349 OF 2007

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REASONS FOR DECISION

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1. Below are the brief reasons for the decision on the plaintiff’s application for stay of execution of the judgment dated 16 November 2011 (which dismissed the plaintiff’s claim and entered judgment on the defendant’s counterclaim) pending the plaintiff’s appeal to the court of appeal.

2. The applicable legal principles are well-known and will not be repeated.

3. As regards the merits of the pending appeal, I have taken into account two special features in this application.  One is the relatively lengthy time taken for the trial judge to pronounce judgment (a time lapse of nearly one year).  The other is a number of factual errors in the judgment which could have resulted from the trial judge’s faulty memory and/or misunderstanding of the evidence.  The errors include the following parts of the judgment:-

(a)  the amount of judgment sum, which should be about $786,000, was initially stated as $1,017,434.29;

(b)  handling charges which have been rejected were somehow included as part of the judgment sum;

(c)  the mis-stated purpose of a laboratory report.

4. Besides the above, I also agree with the plaintiff that it is highly arguable the defendant ought to be held liable to pay for the price of yarns of “shippable quality” delivered to, and used by, the defendants (the plaintiff claims the same amounted to about 80% of the yarns delivered).  It was common ground the yarns delivered were further processed by the defendant and on-sold to its buyer.

5. Accordingly, I find that there are strong grounds of appeal. 

6. As regards the plaintiff’s financial position, I am not entirely satisfied that the plaintiff could face difficulties in continuing its trading operation if it were compelled to satisfy the judgment sum (this is said to result in the appeal being stifled).

7. The plaintiff’s accounts show that its income were in effect paid out as the personal income of its shareholders.  In essence, the plaintiff was the alter ego of the shareholders and there is no evidence concerning the plaintiff’s ability (or inability) to obtain funding from them.

8. Taking all of the above into account, I consider my discretion should be exercised by ordering a stay of execution of the judgment dated 16 November 2011 pending the determination of the appeal (or further order) conditional upon the plaintiff paying into court within 14 days from 9 May 2012:-

(1)  $100,000;

(2)  $200,000 (by way of security for the costs of the appeal).

9. I am greatly assisted by the sensible approach of counsel when determining the amount referred to in para 8(1) above.  Purely for the purpose of determining the said amount (but without prejudice to the parties’ respective stance in this action or the appeal), counsel do not dispute that the price of the goods delivered to the defendant was worth about $420,000, and that the amount of counterclaim was about $630,000.  The difference between the two amounts is therefore $210,000 in the defendant’s favour.

10. The amount ordered to be paid-in (para 8(1) above) represents approximately half of the said difference.