STAR PLAY DEVELOPMENT LTD. v. BESS FASHION MANAGEMENT CO. LTD.

HCA4726/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4726 OF 2001

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REASONS FOR DECISION

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The application before the court

1. On 25 February 2002, I dismissed the defendant's appeal from the Order of Master Ho granting summary judgment to the plaintiff whereby the defendant was required to deliver up vacant possession of the premises known as Shops G06-07, G/F, Hollywood Plaza, Nathan Road, Kowloon ("the Premises").

2. In summary :

(1) The plaintiff was the landlord and the defendant, the tenant of the Premises under a tenancy agreement dated 5 October 1999 ("the Tenancy Agreement"). The original term under the Tenancy Agreement was two years from 1 November 1999.

(2) The Tenancy Agreement contained an option exercisable by the defendant whereby the tenancy of the Premises could be extended by a one year. The main question in the action was whether the Tenant had exercised the option. The plaintiff contended that the defendant had not. For its part, the defendant argued that it had, alternatively that the plaintiff was estopped from contending otherwise or had waived its rights; in the further alternative, that an oral agreement had been made whereby the tenancy was extended by two years.

(3) I held against the defendant on all three defences.

3. The defendant has appealed by a notice of appeal dated 14 March 2002 in relation to the first two defences. I am informed that the appeal is fixed for hearing on 17 October 2002.

4. By a summons also dated 14 March 2002, the defendant applied for a stay of execution on Master Ho's said Order. On 28 May 2002 at the resumed hearing of the summons, I made an order granting a stay of execution for the actual possession of the Premises until the determination of the said appeal or until further order, with costs in the appeal. I also made an order regarding payments to be made by the defendant for the use and occupation of the Premises in the interim.

5. I now give the Reasons for this decision. I will also presently explain the significance of the phrase "actual possession" in the order.

Stay of execution : the applicable principles

6. Though in the court's discretion whether or not to grant a stay, it is important to bear in mind that the starting point is RSC Order 59, rule 13(1) :

" Except so far as the court below or the Court of Appeal or a single judge may otherwise direct-

(a) an appeal shall not operate as a stay of execution or of proceedings under the decision of the court below;

(b) no intermediate act or proceeding shall be invalidated by an appeal."

7. In other words, unless the defendant can justify a stay of execution, one will not be ordered. The practice of the court is that justification can be demonstrated only if good reasons exist.

8. Good reason can exist in a variety of forms. It will be wrong to set out any exhaustive definition of what would constitute good reasons, but, commonly, reference is made to factors such as whether the absence (or existence) of a stay would render an appeal nugatory (thus bringing into focus the relative prejudice that may be caused to the appellant and to the respondent by a stay of execution), and the merits of the appeal.

9. In the context of these two factors, I would make the following observations :

(1) In determining the question whether or not an appeal would be rendered nugatory, the court must of course first have regard to the nature of the order that is the subject matter of the appeal. If the order appealed against is a money judgment, the court will require evidence as to why the levying of execution will result in the appeal being rendered nugatory, such as, for example, an appreciable risk that the respondent to the appeal would not be able to repay in the event of a successful appeal. Sometimes, though, the nature of the order will by itself almost be determinative of the question. Where the relevant order is, for example, an injunction (and particularly so if it is a mandatory injunction), it may well be that, without a stay, an appeal would be rendered nugatory in the event of a successful appeal. Similarly where, as in the present case, the relevant order is one for the possession of premises, again it can readily be appreciated that without a stay of execution, more often than not, it is likely than an appeal would be rendered nugatory : see Ketchum International plc v. Group Public Relations Holdings Limited [1997] 1 WLR 4, at 10H.

(2) That said, whatever the nature of the order or judgment appealed from, the court will still require evidence as to why an appeal will be rendered nugatory in the event of a stay not being granted. The requisite quality of the evidence will, of course, depend on the nature of the order or judgment appealed against.

(3) I now deal with a common facet relied on in any argument relating to an appeal being rendered nugatory, namely that of financial ruin or serious financial consequences. Where, as in the present case, it is said that the levying of execution would result in financial ruin or serious financial consequences for the appellant, the court will require good evidence to support this contention, such as the production of accounts or other documents to justify the assertion. A bare assertion is unlikely to meet with much sympathy where more substantial evidence is available : see the observations of Mr Justice Litton, JA in World Trade Centre Group Limited v. Resourceful River Limited, unreported, 12 May 1993, Civil Appeal 70 of 1993, Court of Appeal, at 3-4.

(4) An appeal being rendered nugatory does not mean in all cases that without a stay, the appellant faces financial ruin or the loss of all his property. Demonstrating that the failure to grant a stay would have a serious deleterious effect is enough : see Caine Tai Investment Company Limited v. Ayala International Finance Limited [1983] 1 HKC 163, a decision of the Court of Appeal which made reference to Wilson v. Church (No.2) [1879] 12 Ch. D. 454.

(5) How relevant then is the court's consideration of the merits or strength of the appeal? In my view, while it is impractical and even undesirable for the court in dealing with an application for a stay of execution, to go deeply into the merits and strengths of an appeal, it must however form a preliminary view of these aspects. This I believe to be an inevitable consequence of the starting point I have earlier mentioned in referring to Order 59, rule 13(1).

(6) The existence of merely an arguable appeal cannot by itself amount to sufficient reason to justify a stay. It can be put this way : the existence of an arguable appeal (that is, one with reasonable prospects of success) is the minimum requirement before a court would even consider granting a stay. In other words, however exceptional the circumstances may be otherwise justifying a stay of execution, if the court is not convinced that there exist arguable grounds of appeal, no stay will be granted.

(7) Conversely, however, the existence of a strong appeal or a strong likelihood that the appeal would succeed, will usually by itself enable a stay to be granted because this would constitute a good reason for a stay : see World Trade at 2; Winchester Cigarette Machinery Limited v. Payne (No.2), unreported, 15 December 1993, English Court of Appeal (a case referred to by the Court of Appeal in Fung Wai Kwong William v. The Insider Dealing Tribunal [2001] 1 HKC 44).

(8) In most cases, the court will not be dealing with the extreme situations I have referred to. Often, it will be faced with simply the existence of an arguable appeal. Here, it becomes necessary for the appellant to provide additional reasons as to why a stay is justified. The demonstration of an appeal being rendered nugatory is one example, albeit a common one. Here, 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 an arguable appeal. Correspondingly, where it cannot be shown that an appeal would be rendered nugatory if a stay were not granted, the court will require, in the absence of any other factors, the appellant to demonstrate strong grounds of appeal or a strong likelihood of success. This I understand to be the sentiment found in authorities such as World Trade at 2 (in a passage cited with approval by the Court of Appeal in Fung Wai Kwong William at 48) and Mabul Properties Corporation v. Ahmed, unreported, 24 June 1987, English Court of Appeal.

(9) I have so far referred to the position of the appellant. It is important to stress that the court must not at any stage forget the position of the successful party. It is always relevant to consider the prejudice that would be caused to the successful party (the respondent in the appeal) in the event a stay is granted and if necessary, to impose conditions so as to minimise the prejudice caused to him. A fortiori, the court must consider any contention that the appeal would be rendered nugatory to him (in the event the appeal is dismissed) should a stay of execution be imposed.

10. Ultimately, the court embarks on a balancing exercise and uses its common sense, but bearing in mind at all times the starting point that the successful party is not to be deprived of the fruits of his success : see Winchester Cigarette Machinery, per Ralph Gibson LJ.

The present case

11. The defendant contends (in an affidavit of one of its directors) that if a stay were not granted, its business would be ruined as it would lose virtually 30-40% of its business turnover. I am not impressed by what were really bare assertions of financial ruin. No financial documents were exhibited to justify the assertion. I repeat here to the comments of Mr Justice Litton JA in World Trade Centre.

12. The only fact that saved the day for the defendant was that if a stay of execution was not granted, it will lose possession of the Premises. Were it to succeed in the appeal (and ultimately in the trial of the action), it would have been entitled to remain in the Premises for another year by reason of the exercise of the option. The plaintiff was unable to say (although this was hinted at in its written submissions) that if the appeal was allowed, the defendant would somehow be allowed back into the Premises. Indeed, I perceive, the whole point of levying execution was to enable the plaintiff to let the Premises to another tenant.

13. However, I have not ignored the plaintiff's position in the event of a stay being granted. I fully appreciate that from the plaintiff's point of view, in obtaining a stay, the defendant has succeeded in the action proper to an extent, namely, that it will remain in possession of the Premises until at least 17 October 1992, which is just shortly before the time when the tenancy would expire on the basis that the option was validly exercised. This is a legitimate grievance, but one which does not in my view cause undue hardship or prejudice to the plaintiff, for in the event the plaintiff succeeds in the appeal (or in the action as the case may be), it would be entitled to mesne profits and damages arising from the defendant's wrongful occupation of the Premises.

14. Finally, I turn to one aspect of the terms of the Order I have made. They refer to the stay of execution for the "actual" possession of the Premises. I have used this word deliberately. I was informed by Mr Khaw (for the plaintiff) that in levying execution for possession of premises, a number of procedures involving the bailiff have to be completed before actual possession is obtained. By using the word "actual", I intended that the plaintiff would then be free to complete all procedures up to but excluding the actual possession of the Premises. In this way, the plaintiff is to an extent protected against any delay arising from the appeal in the event that it is ultimately decided in its favour.