JOINT SUCCESS (HK) LTD v. KAMSH (PTC) LTD

HCMP 2/2022

[2023] HKCFI 2828

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2 OF 2022

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D E C I S I O N

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A. INTRODUCTION

1.  By a summons of 22nd August 2023 (“the Stay Summons”), the Defendant seeks a stay of execution of the judgment (“the Judgment”) and order herein of 30th June 2023 pending the determination of the Defendant’s appeal against them by notice of appeal of 28th July 2023 (“the Notice of Appeal”).

2.  This decision should be read in conjunction with the Judgment, the contents of which I will not repeat here.

B.  THE PRINCIPLES

3.  There is no dispute as to the applicable principles, which were set out in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at [6] to [10] (Ma J, as he then was).

3.1  An appeal does not operate as a stay of execution of proceedings.

3.2  In order to justify a stay of execution, the appellant must show that good reasons exist.  Relevant factors include whether the absence or existence of a stay would render an appeal nugatory, and the merits of the appeal.

3.3  The existence of an arguable appeal is the minimum requirement before the court will even consider granting a stay.  The existence of a strong appeal would usually by itself enable a stay to be granted, because this would constitute a good reason for a stay.  But where there only exists an arguable appeal, the appellant would need to provide the court with additional reasons as to why a stay is justified, for example, that the appeal would be rendered nugatory.  It is impractical and even undesirable to go deeply into the merits and strengths of the appeal, but the court must form a preliminary view of these aspects.

3.4  As to whether an appeal would be rendered nugatory, the court must first have regard to the nature of the order which is the subject matter of the appeal.  Evidence will be required as to why the appeal would be rendered nugatory.

3.5  The position of the respondent should not be forgotten.  It is always relevant to consider the prejudice that would be caused to the respondent in the event that a stay is granted, and if necessary, to impose conditions so as to minimise the prejudice caused to him.

3.6  Ultimately, the court embarks on a balancing exercise, with the starting point that the successful party is not to be deprived of the fruits of his success.

C.  WHETHER ARGUABLE APPEAL

4.  The Defendant relies most heavily on ground 1 in the Notice of Appeal as disclosing a “strong appeal” justifying a stay of execution, or at least an arguable one.

Ground 1

5.  Under ground 1, the Defendant says that I erred in the construction of cl.10.03 of the Facility Agreement,[1] as cl.10.03 only permits the giving of a notice which has the effect of declaring that Loan Indebtedness has, as at the date of service of the notice, already become due and payable; and the Plaintiff’s solicitors’ letter of 13th December 2021 (“the 13.12.2021 Letter”) did not satisfy this, as it said that if the outstanding sums and interest were not paid within seven days, only then would the Plaintiff declare the Loan Indebtedness due and payable.

6.  In the Judgment at [22] to [28], I have explained why I did not agree with this submission.  As at 13th December 2021, there was an undisputed event of default, and the 13.12.2021 Letter declared unless the outstanding sums were paid within the next seven days, the Loan Indebtedness would be due and payable and no further notice to the Defendant would be needed.  No payment was made, and the Loan Indebtedness became due and payable pursuant to the 13.12.2021 Letter.

7.  In its submissions, the Defendant says that since contractual notices operate unilaterally, the conditions under which they may be served must be strictly complied with, citing Mannai Ltd v Eagle Star Assurance Co Ltd [1997] AC 749 at 776A-B (Lord Hoffmann).  It is said that the words “has become”, “whereupon” and “immediately” mean that the 13.12.2021 Letter cannot constitute a valid notice under cl.10.03.

8.  However, as Lord Hoffmann also emphasised and as the House of Lords (by a majority) held, such notices are to be construed objectively, the question being what a reasonable person, in the circumstances of the actual parties, would have had in mind (see 767G-768B).  I do not agree that it is reasonably arguable that a reasonable recipient would have understood the 13.12.2021 Letter as a notice given under cl.10.01(ii) (rather than cl.10.03) to pave the way for an event of default to arise should the Defendant fail to remedy its failure to perform obligations within seven days.  As the Plaintiff points out, an event of default had already indisputably occurred by 10th December 2021 and there was no need for the 13.12.2021 Letter to enable one to come into existence.  The purpose of the 13.12.2021 Letter was obviously to accelerate the Loan Indebtedness, rather than to enable the Plaintiff to establish an event of default.

9.  In the circumstances, I do not need to delve into the merits of the Plaintiff’s argument based on Dao Heng Bank Ltd v Lam Ying Bor Investment Co Ltd [1987] 1 HKC 217, which was not argued before me on the hearing of the Originating Summons.

Ground 2

10.  Under ground 2, the Defendant says that I erred in holding that the Originating Summons complied with the mandatory requirement under RHC O.7 r.3(1), when the Originating Summons did not contain sufficient particulars to identify the cause of action in respect of which the Plaintiff claimed relief or remedies.  It is said that no breach of contract was pleaded, and that the particulars of the breach were not set out.

11.  In the Judgment at [29] to [32], I have explained why I did not agree with this argument.  The claim for payment of all sums due under the Mortgage and for vacant possession of the Property would have made it clear that sums were outstanding under the Mortgage.  It is fanciful to say that there could have been any ambiguity as to the cause of action being relied on by the Plaintiff.  On the contrary, it is clear from the Defendant’s own evidence that it was well aware of the particulars of the Plaintiff’s case. Insofar as it is suggested that there is a special feature of the present case in that there was ambiguity arising out of the 13.12.2021 Letter, I note that Madam Hiranand never suggested in her evidence that she or the Defendant had laboured under any misunderstanding of the 13.12.2021 Letter.

12.  As Honip Credit v Leung Tak Sing Paul [2020] HKCA 879 at [3], [4.7], [4.8] illustrates, the mere fact that the originating summons only claims payment of all monies due under a mortgage, together with delivery of vacant possession of the mortgaged property, does not amount to non-compliance with O.7 r.3(1).

Grounds 3, 4, 5, 7

13.  Under grounds 3, 4 and 5, the Defendant challenges the rejection of its defence based on an alleged oral Collateral Agreement that (inter alia) the Loan would continue to be extended and that the Plaintiff would refrain from taking enforcement action (on various terms), and its counterclaim based on an allegation that an executive director of the Plaintiff’s parent company had been actively discouraging potential purchasers of the Property and potential financiers from dealing with the Defendant and the Property, “poisoning the well” in breach of the Plaintiff’s obligations under the alleged oral Collateral Agreement.

14.  In the Judgment at [34] to [59], I have explained why the alleged oral Collateral Agreement and the allegations of “poisoning the well” are incredible.  It cannot be the case that whenever there is a factual dispute as to the existence of a collateral agreement, it can only be resolved through the taking of oral evidence and conduct of cross examination at trial, even if the claim of the agreement is incredible.  The various other points in the Notice of Appeal simply seek to re-argue the issue of the credibility of the Defendant’s case by reference to selected parts of the evidence.

15.  Ground 7 is, as the Defendant says, simply a “wrap-up” ground and adds nothing new.

Ground 6

16.  Ground 6 is a complaint that the original Mortgage was not produced at the hearing of the Originating Summons.  It is not an objection that was raised at the hearing.  Had this truly been an issue of contention and had it been ascertained at the time that there was such an omission, it could no doubt have been addressed.

No arguable appeal

17.  I therefore do not agree that there is an arguable ground of appeal.  This suffices to dismiss the Stay Summons.

D.  WHETHER APPEAL RENDERED NUGATORY

18.  For completeness, I go on to briefly set out my observations as to whether the appeal would be rendered nugatory in the absence of a stay of execution.

19.  The Defendant says that the nature of the order for delivery of vacant possession makes it likely that the appeal would be rendered nugatory, particularly as (1) the Plaintiff has already appointed receivers who have given notice that they will proceed to take possession, change the locks and instruct a bailiff to deal with the Property, (2) the Property is rare and not run-of-the-mill, and (3) the Property has a history as a family property with sentimental value.

20.  However, it is the Defendant’s own case that it would seek to sell (or refinance) the Property if it obtained a stay of execution: 5th Affirmation of Hiranand Kamla Lal at paragraph 18.  The 4th Affirmation of Lau Ho Yin for the Plaintiff (“Lau 4th”) at paragraph 14 sets out the numerous places in the Defendant’s evidence filed in these proceedings saying that it has all along been seeking to sell the Property since at least early 2021, which is not denied.  Furthermore, nobody from the Defendant’s camp has lived in the Property since around 2006: Lau 4th paragraph 13.  It is therefore not the case that in the event that the Defendant were to succeed on appeal, it would have lost a property which it would otherwise have retained.

21.  The Defendant’s response to this is to say that there is a world of difference between a sale conducted by the Defendant on the market and a fire sale conducted by receivers, but there is no evidence as to what, if anything, that difference may be.  In any event, even if a sale by the receivers would fetch a lower price, it would not follow that the appeal would thereby be rendered nugatory.

22.  The Defendant says that as regards the order for payment of monies due under the Mortgage and other costs and expenses, the amounts due total some $556m as at 6th September 2023, so that execution would cause financial ruin or at least deleterious financial consequences to the Defendant, a property-holding company whose only substantial asset is the Property and which does not have enough funds to repay the judgment sum. However:

22.1  since the test is whether the appeal would be rendered nugatory without a stay, it is relevant to consider whether the deleterious effect complained of is irremediable: cf. Caine Tai Investment Co Ltd & ors v Ayala International Finance Ltd & Republic National Bank of New York [1983] 1 HKC 163 at 166D-F (Roberts CJ), cited in Star Play at [9(4)];

22.2  there is no evidence that the Plaintiff could not pay back the Defendant in the event that the Defendant succeeds on appeal. The Defendant points to Lau 4th paragraph 17, which says that the Lenders’ liquidity has been seriously affected as they have been kept out of their money since December 2021.  This does not mean that the Plaintiff would not be able to pay back the Defendant;

22.3  the Defendant is simply a property-holding company with the Property as the only substantial asset, so there is no question of it being (for example) forced to shut down its business or lose business opportunities in the event that no stay is granted.

23.  Against this, I accept the Plaintiff’s submission that it would be the one to suffer prejudice if a stay were to be granted. The amounts due under the Mortgage remain unpaid, and interest continues to accrue (and remain unpaid). According to the latest valuation report of 28th July 2022,[2] the valuation of the Property at $520m is already insufficient to repay the $556-odd million outstanding under the Mortgage as at 6th September 2023, and it is the Defendant’s evidence that Hong Kong property prices will continue to fall until 2025 (see Affirmation of Hiranand Kamla Lal at paragraph 22.3 and news articles exhibited thereto).

E.  CONCLUSION

24.  I dismiss the Stay Summons.  I further make a costs order nisi that the costs of and occasioned by the Summons be paid by the Defendant to the Plaintiff on an indemnity basis given the terms of cl.16.01(iii) of the Facility Agreement and cl.10(b) of the Mortgage, to be summarily assessed if not agreed.  The Defendant has lodged and served its costs statement together with its skeleton submissions.  The Plaintiff is to lodge and serve its list of objections, if any, in bullet point form limited to 1 page, within 5 days; the Defendant is to lodge and serve its reply, if any, in bullet point form limited to 1 page, within 3 days thereafter.