INTELLIGENT HOUSE LTD v. CHINA SUPERIOR LTD

CACV 241/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 241 OF 2008

(ON APPEAL FROM LDCS NO. 11000 OF 2006)

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 REASONS FOR JUDGMENT

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Hon Tang VP (giving the reasons for judgment of the Court):

1.  The applicant, Intelligent House Limited (“Intelligent House”) acquired 92.31% of the undivided shares in the Kam Kwok Building and the National Building (“the Properties”) in Wanchai at the price of $825,000,000 as the result of a public tender in September 2006.

2.  On 29 November 2006, by LDCS 11000/2006, the applicant applied under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545 (“the Ordinance”), for an order of sale of all the undivided shares in the Properties.  The application was, as required, supported by a valuation report (“the Schedule 1 Report”).

3.  China Superior Limited (“the 13^th respondent”), is the owner of Flat No 7, 5^th Floor of Kam Kwok Building (“the unit”).  They purchased the unit on 3 March 2007 for $2,500,000.  The purchase price was more than 2.7 times the existing use value of the unit according to the Schedule 1 Report.  The 13^th respondent is a shell company with a capital of $1.

4.  The application was heard in the Lands Tribunal before District Judge Thomas Au, Presiding Officer and Mr W K Lo, Member.  After a 19-day hearing, on 23 June 2008, the judgment was handed down.  It ordered that the Properties be sold on the terms set out in the judgment.  It also appointed two solicitors as trustees to handle the sale.  The reserved price is $1,421,124,000.  If the Properties are sold at the reserve price, the share attributable to the unit is approximately $1,980,000.

5.  The 13^th respondent has appealed the order of the Tribunal.  The appeal has been fixed for hearing for 3 days commencing 1 April 2009.

6.  The Properties are scheduled to be sold at 10 am on 28 August 2008.

7.  The 13^th Respondent’s application for a stay of the sale pending appeal was heard by the Tribunal on 23 August 2008.

8.  The Tribunal granted an unconditional stay pending appeal.  Although the Tribunal had wished to reserve their reasons, on being informed by counsel for the applicant that he had instructions to appeal to the Court of Appeal against the stay on an urgent basis, the Tribunal provided a note of its reasons (“the Note”).  The Note has been of great assistance to us.

9.  Essentially, the Tribunal granted a stay because it was of the view that the applicant has an arguable appeal and that if the stay were not granted, the appeal would be rendered nugatory.  We should mention that it is not the 13^th respondent’s case that its appeal is likely or very likely to succeed.  It is only that the appeal is arguable, in other words, it has crossed the threshold requirement for a stay.

10.  Before the Tribunal, the applicant, then represented by Mr Mok Yeuk Chi, submitted that the applicant would suffer financial loss if the appeal is unsuccessful.

11.  The Tribunal noted that the applicant’s case on its potential financial loss if the appeal is unsuccessful has not been challenged.  But Mr Edward Chan SC for the 13^th respondent, submitted before the Tribunal, that if the enforcement of the order of sale is delayed due to an appeal, the applicant could not legitimately complain.

12.  The Tribunal concluded:

“17.   In our view, in the balance exercise, after weighing this potential financial loss of Intelligent House in the event of an unsuccessful appeal against the effect of the appeal being rendered nugatory if a stay is not granted, coupled with our conclusion that there is an arguable appeal and the fact that the possibility of appeals are an integral part of every litigation, we come to the view that the discretion should be exercised in favour of granting a stay in the circumstances of this case.”

13.  On 26 August 2008, this court heard the appeal although the Notice of Appeal was only filed on 25 August 2008.

14.  Mr Patrick Fung SC, leading Mr Mok, accepted that unless it be shown that the Tribunal exercised its discretion “under a mistake of law … or in disregard of principle … or that (it) took into account irrelevant matters … or the conclusion which the (Tribunal) reached in the exercise of (its) discretion was ‘outside the generous ambit within which a reasonable disagreement is possible’ …”, the appeal cannot succeed.  59/1/49 Hong Kong Civil Procedure 2008

15.  The question of the unchallenged financial loss has been put at the forefront of Mr Patrick Fung SC’s submission.

16.  As Ma J (as he then was) said in Star Play Development Ltd. v. Bess Fashion Management Co. Ltd. [2007] 5 HKC 84 para. 9(9):

“… 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.”

17.  If the sale is stayed pending appeal, interest loss on the applicant’s purchase price alone would exceed $29,000,000.  Having regard to possible downturn in the property market, the potential loss may be substantially more.

18.  As the 13^th respondent would not be liable to compensate the applicant for such loss, the applicant submitted there should be no stay unless the 13^th respondent should undertake to indemnify the applicant for such loss.  Further, because the 13^th respondent is a shell company with a paid up capital of $1, the undertaking should be fortified.  Mr Fung submitted this is analogous to the undertaking which an applicant for an interlocutory injunction has to provide.  We agree.  In any event, the unchallenged potential loss in is an important consideration when deciding whether a stay should be granted.  An appellant may mitigate such loss by the offer of an appropriate undertaking.

19.  Whilst Mr Fung does not dispute that the appeal is arguable and “that the possibility of appeals are an integral part of every litigation”, he submitted that this is a case where the exercise of the discretion was “outside the generous ambit within which a reasonable disagreement is possible”.

20.  On the other hand, Mr Chan submitted that if a stay is not granted, the appeal would be rendered nugatory.  That is often the single most important factor in considering whether or not to grant a stay.  Mr Chan submitted that if a fortified undertaking were required, the 13^th respondent would not be in a position to provide it.  So it will have the effect of stifling the appeal.

21.  That is a submission which is often made when resisting an order for security for costs of the appeal.  In such circumstances, the appellant has to “satisfy the court not only that he is unable to furnish security for costs from his own resources, but also (and the onus of proof is on him on this issue) that he is unable to raise the money elsewhere; in assessing whether he would raise the money elsewhere the court adopts the same rigorous approach as in the O.14 case of York Motors v Edwards [1982] 1 WLR 444 …” 59/10/35.

22.  When queried whether there was evidence that the 13^th respondent was not in a position to offer a fortified undertaking for a reasonable amount, Mr Chan admitted that there was no evidence.  However, he submitted since it was the applicant’s case that the 13^th respondent had no means, the 13^th respondent was content to proceed on that basis.

23.  Mr Chan submitted that the 13^th respondent can offer no more than the value of the unit as security.  But the Tribunal has already made an order nisi that the 13^th respondent pays the costs of the application.  According to he applicant’s skeleton bill, the applicant’s cost exceeded $14,000,000.  It is true the 13^th respondent has applied to vary the cost order so that it should not be responsible for more than one-third of such costs.  But even one-third is likely to exceed the value of the unit.

24.  As noted, the 13^th respondent is a shell company with a capital of $1.  It was able to buy the unit for $2,500,000 without any mortgage.  It was also able to finance the hearing and presumably the appeal. 

25.  Looking at the matter realistically, we are not prepared to proceed on the basis that the 13^th respondent is not in a position to offer a meaningful fortified undertaking should the 13^th respondent think it advantageous to do so.  So we will not proceed on the basis that the appeal would be stifled, if we were to refuse a stay except on terms.

26.  Mr Chan submitted that the law does not regard monetary compensation as adequate for land.  As was said in Snell’s Equity (31^st Ed), at 352:

“Contracts relating to land differ greatly from contracts respecting most goods, because the land may have a peculiar value to the purchaser or lessee”.

That is why almost invariably, specific performance is ordered.  Mr Chan submitted since the appeal concerns the sale of the unit, the court should not lightly refuse a stay.

27.  But the peculiar value will vary according to the circumstances.  An owner who is resisting the sale of his home is very different from a person who bought the property as an investment after the commencement of an application for sale under the Ordinance.  Lest we be misunderstood, we are not saying that a stay should normally be granted to the former.  It is one of many factors to be considered.

28.  Here, Mr Chan, with his characteristic candour, has accepted the unit was purchased as an investment.  We dare say the value of the investment will depend largely on the delay the 13^th respondent could cause to the development and the willingness of the applicant to pay to prevent the delay.

29.  The weight which one should attach to the reality of such loss to the minority owner when the court comes to balance his loss against the potential loss to the applicant must depend on all the circumstances.  In this case, the unchallenged loss in terms of loss of interest alone is over $29,000,000.  On the other hand, the 13^th respondent is an investor who has no emotional attachment to the unit.  As Mr Chan accepted, it was an investment.

30.  As the judgment of Ribeiro PJ in Capital Well Ltd v. Bond Star Development Ltd [2005] 8 HKCFAR 578, shows the objective of the Ordinance included:

“21.   … preventing the indefinite obstruction of a redevelopment by any minority owners who may seek to extract a wholly unreasonable price or ‘ransom’ for permitting the redevelopment to proceed.”

31.  We believe in considering whether a stay pending appeal should be granted, the court should not lose sight of reality.

32.  On the facts of the present case, with great respect to the Tribunal, we believe the exercise of discretion to grant an unconditional stay is “outside the generous ambit within which a reasonable disagreement is possible”.

33.  As for Mr Fung’s alternative argument under section 5(4) of the Ordinance, we are in respectful agreement with the Tribunal that under section 5(4), the court may grant more than one period of extension and in doing so may make such consequential order including the revision of the reserve price, as it may deem fit.

34.  For the above reason, we have allowed the appeal and set aside the order for stay with costs here and below.