KSDY INTERNATIONAL CO LTD AND ANOTHER v. HONWAY (CHINA) LTD

CACV 190/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 190 OF 2006

(On Appeal from HCA 4514 of 2002)

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DECISION

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Hon Yuen JA:

1.  There were initially before me this morning (i) the Defendant’s application for a stay of execution pending appeal and (ii) the Plaintiffs’ application for security for costs of the appeal.

2.  As far as the application for security for costs is concerned, an abridgment of time is required for it to be heard, as it was filed and served only yesterday. 

3.  There is no good reason why an abridgment of time should be given for the application to be heard today.  The appeal is not due to be heard until late January 2007 and the Defendant would be clearly prejudiced if the application were to be heard today.  The Plaintiffs have filed an affirmation including a draft bill of costs for a substantial sum.  The Defendant should at least be given time to consider the bill and to comment on the items in it.  The summons for security for costs should therefore be refixed.

4.  I shall therefore only deal with the application for a stay of execution.  On 23 March 2006 Deputy Judge Muttrie ordered the Defendant to specifically perform a contract for the sale of a property to the Plaintiffs.  By a further order given on 20 June 2006, the deputy judge ordered that completion is to take place on 31 July 2006.  That was predicated upon the Defendant complying with an order for delivery of title deeds and showing and proving good title within 7 working days i.e. by 29 June 2006. 

5.  The Defendant however failed to comply with the order, notwithstanding a reminder from the Plaintiffs’ solicitors the day after the deadline i.e. 30 June 2006.  No explanation was forthcoming for the default in complying with the order of the court.

6.  I have to say that this blatant flouting of a court order is extraordinary.  At the commencement of the hearing this morning, I indicated to Counsel for the Defendant that I did not see why the court should hear the Defendant’s summons at all when there was a prima facie case that it was in contempt of a substantive court order. 

7.  Counsel for the Defendant sought to explain that it was thought that the order need not be complied with because the Defendant had applied for stay of execution.  I find that explanation difficult to accept because on the same day as the order was made, the deputy judge had dismissed the Defendant’s summons for stay of execution. 

8.  In any event it was not until 5 July 2006 that the Defendant lodged the present application to the Court of Appeal for stay of execution, and Counsel for the Defendant accepts that in any case a pending application for stay is not a ground for non-compliance with a court order.

9.  In the end, Solicitors for the Defendant gave an undertaking that the order would be complied with within the next 48 hours (subsequently extended to 7 days as the title deeds were later  ascertained to be in the mortgagee bank’s storage).  I further ordered that an explanation for the default in compliance with the court’s order should be made on affirmation by the partner in charge of this case.

10.  To return to the summons for stay of execution, the principles applicable to an application for a stay of execution pending appeal are well-established and have been conveniently set out in Star Play Development Ltd v Bess Fashion Management Co Ltd unrep., HCA 4726/2001.  I do not need to repeat them here.  They are not in dispute.     

11.  First and foremost the guiding principle is that unless a stay can be justified by good reasons, one will not be ordered. 

12.  The Defendant says first that it has strong grounds of appeal.  In this case the Defendant had agreed to sell a property to the 1^st Plaintiff (which later nominated the 2^nd Plaintiff to take up the contract) by way of a Provisional Sale and Purchase Agreement ("PSPA") containing what has been called in previous cases an ‘escape clause’.  A deposit of $100,000 was paid on 3 October 2002.  The parties did not enter into a formal sale and purchase agreement on 10 October 2002 as provided in the PSPA despite the exchange of drafts, but the Plaintiffs paid $320,000 as balance of deposit.  The parties did not complete on 4 November 2002 as provided in the PSPA.  The Plaintiffs pressed for completion by 13 November 2002.  It was not until that date that the Defendant’s solicitors sent a sum of only $100,000 (i.e. the first deposit) as compensation purportedly in pursuance of clause 7 of the PSPA, indicating that the Defendant did not wish to proceed with the sale.  The true issue is whether the Defendant could avoid an order for specific performance through utilizing the ‘escape clause’ and whether on the facts it had done so.

13.  I have read the judgment of 23 March 2006, the grounds of appeal and the Respondent’s Notice filed on 10 June 2006 putting forward various grounds affirming the judgment.  The main plank of the submissions advanced by Counsel for the Defendant was the judgment of Keith J (later Keith JA) in Wong Shiu Hung v Kwok Sing Leung [1992] 2 HKC 369.  Essentially the submission was that the ‘escape clause’ simply provided an agreed remedy for the purchaser where the vendor refused to complete, so that it was not even necessary for the vendor to pay the agreed compensation within the time stipulated in the ‘escape clause’, as that would only be a delay in the payment of damages.

14.  The case advanced by the Defendant is unattractive to say the least and appears to be inconsistent with a number of other authorities in the Hong Kong Court of Appeal and certain observations in the Privy Council.  At this stage I should say no more than that I do not consider that the Defendant’s grounds of appeal are, without more, so strong as to warrant a stay of execution. 

15.  The Defendant then says that it would suffer prejudice if the order were carried into execution.  It owes the bank $3m and the Plaintiffs at least $1.64m by way of damages (the Plaintiffs say the sum is actually more than $2m.).  The Defendant says the property is now valued at $8.7m, but the contract price was only $4.2m, and the balance of the purchase price receivable by it will be reduced by the damages payable to the Plaintiffs.  In other words, if the judgment is upheld, it will get nothing out of the property, but if the judgment is overturned, it would still have a substantial equity in the property.

16.  The Defendant says it is otherwise impecunious and it has not been tendering mortgage repayment since March 2006 (when judgment was given).  It also says that the tenant of the property has been in arrears of rent since January 2005.  Although the Defendant used to own another property, that has been sold and the proceeds used to repay another debt.  There is no allegation that the Defendant would have other funds available to it in the future.

17.  The Plaintiffs say that it is precisely this situation which should compel the court to refuse a stay of execution.  Every day that passes without completion is an additional day’s mortgage interest and the greater the risk of the bank exercising its power of sale to the detriment of the Plaintiffs.  

18.  In my view, the Defendant has found itself in the position it is in because of its borrowings from the bank, its liability in damages to the Plaintiffs and its tenant’s failure to pay rent.  Those financial difficulties are not such as to amount to prejudice warranting a stay of execution.  On the contrary, the detriment that would be suffered by the Plaintiffs from further delay in completion is obvious.  The fact that the bank and the Plaintiffs may find themselves locked in a battle over priorities is not a reason for staying execution of the order to which the bank is not a party.  

19.  It is true that landed property is unique but I have not been referred to any authority that holds that the mere fact that the order is for the sale of a property - without more - warrants a stay of execution pending appeal.  The Defendant had been willing to sell the property to the Plaintiffs and the factual reasons given by it for reneging on the PSPA were rejected by the judge .

20.  It is for the applicant for a stay of execution to persuade the court why a stay should be granted.  The Defendant has failed to do so.  The application is dismissed with costs.