BANK OF CHINA (HONG KONG) LTD v. TWIN PROFIT LTD AND OTHERS

CACV 94/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 94 OF 2010

(ON APPEAL FROM HCMP NO. 874 OF 2009)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Yuen JA:

1.  This is an application for an order that a stay of execution granted on condition of payment into court of $100 m. be made unconditional, alternatively for an order that the sum of payment in be reduced. At the end of the hearing, I made an order that the sum of payment in be reduced to $70m. These are my reasons.

Proceedings

2.  On 8 May 2009 the Plaintiff bank issued mortgage proceedings against the Defendants by way of originating summons.  It claimed repayment of sums lent with interest and costs, and delivery of vacant possession of various properties which had been charged by some of the Defendants as security for the loans. 

3.  The Defendants applied for an order that the proceedings be continued as if by writ and for other directions.

Master de Souza’s Order

4.  On 25 January 2010 Master de Souza dismissed the Defendants’ application and gave judgment to the Plaintiff in the sum of approximately $265m with interest and costs.  He also ordered the 2^nd Defendant to deliver up vacant possession of the 2^nd Charged Property which comprises 2 houses on the Peak, and the 5^th Defendant to deliver up vacant possession of the 3^rd Charged Property which comprises 3 shops. 

Fok J’s Judgment

5.  The Defendants appealed.  On 30 March 2010, Fok J dismissed the appeal (Judgment reported at [2010] 2 HKLRD 1065). 

Appeal from Fok J’s Judgment

6.  The Defendants are appealing Fok J’s Judgment in CACV94/2010. The appeal is due to be heard on 19 November 2010.

Proceedings for possession

7.  In the meantime on 23 July 2010, the Plaintiff issued a writ of possession and fi.fa. combined for the purpose of obtaining possession of the 2^nd and 3^rd Charged Properties.

Application for Stay of execution

8.  On 10 August 2010 the Defendants applied for a stay of execution of Fok J’s judgment until the determination of the appeal.

Fok J’s Decision on Stay application

9.  On 27 August 2010 Fok J refused a stay of execution of the order for the payment of money, but granted a stay of execution of the order for possession on condition of payment into court of $100m.

10.  In his decision given extemporaneously, Fok J considered the principles governing applications for stay of execution pending appeal (paras. 8-10).  Applying those principles, the learned judge held that the merits of the Defendants’ appeal were not so strong as to entitle them, without more, to a stay of execution. Indeed he indicated that he did not consider the appeal even arguable, but he was prepared to assume that it was (para. 12).  He accepted that if execution of the Judgment for possession was not stayed, the Plaintiff might sell the Charged Properties before the hearing of the appeal (para. 15) and that would render the appeal against the possession orders nugatory (para. 20).  However the judge was not prepared to grant a stay of execution unconditionally as there was no evidence from the Defendants as to their financial status or their inability or otherwise to pay the judgment sum (paras. 16-17). 

11.  Accordingly the judge granted a stay of execution of the order for possession conditional upon the Defendants’ payment into court of a sum of $100m being the approximate difference between the judgment sum ($265m) and the value of the 2^nd and 3^rd Charged Properties ($162m).  Valuations of the properties done in June 2010 had indicated a value of $150m. for the 2^nd Charged Property and $6.6m for the 3^rd Charged Property.

12.  After the judge gave his decision, counsel for the Defendants asked for leave to file evidence to demonstrate that they were unable to fulfill that condition.  After the judge noted that the condition was not one imposed in an application for summary judgment, he indicated to counsel that it may well be that he would have to go to the Court of Appeal to have the conditional stay he had granted either made unconditional or extended if necessary.  The judge also noted that he would probably be functus in any event after giving the decision.

Application to Court of Appeal for Stay

13.  On 10 September 2010 the Defendants issued a summons before this court for an order that the conditional stay granted by Fok J be made unconditional. 

14.  Mr Mok Wei Tak, a director of each of the Defendant companies, made an affirmation (his 5^th) 4 days after Fok J’s Decision, alleging that the Defendant companies were financially unable to furnish any security.  He exhibited trial balances of the Defendant companies and said “all the account receivables in the current assets columns are either connected companies’ investments or credit balances which have been carried over for at least 10 years or more with the prospect of recovery virtually non-existent” (para. 7).  There was made on 29 September 2010 and filed on 30 September an affirmation of Chan Suk Kin, the Financial Controller of the 6^th Defendant who is also responsible for the accounts of the other Defendant companies, containing a short analysis of the trial balances.

15.  There were also filed subsequently an affirmation of the Plaintiff’s solicitors referring to updated valuations of the 2^nd and 3^rd Charged Properties undertaken by a number of valuers, and a further affirmation of Mr Mok (his 6^th) containing a valuation by Savills of the 2^nd Charged Property.

Reasons for decision

16.  Mr Lui, counsel for the Plaintiff, advanced the preliminary argument that this court should refuse to entertain the application.  He accepted that the Court of Appeal has concurrent jurisdiction to hear an application for stay of execution (O.59 r.13 RHC) but he argued that as Fok J did not refuse a stay, this court should not hear the application and should remit it to be dealt with by Fok J. He argued that as the learned judge’s order was not sealed until 22 September 2010, it was open to the Defendants to ask the judge to vary his order on considering the new evidence.

17.  Whilst that may have been the position with Mr Mok’s 5^th affirmation, I note that the Defendants had other evidence being prepared (Mr Chan’s analysis and Savills’ valuation) and it would have been a race against time to have these ready for a hearing before Fok J’s order was sealed, the date of that act not being known to the Defendants.  That was probably what Fok J had in mind when he indicated to counsel for the Defendants at the hearing that he would have to go to the Court of Appeal to have the conditional stay varied.  So I think it was probably sensible for the Defendants to have lodged this application before this court.   

18.  Coming then to the merits of the application, it is well-established that it is for the party applying for a stay of execution to show that a refusal would render the appeal nugatory.  Where, as in this case, the Defendants say that the stay should be granted unconditionally (or as Mr Coleman SC for the Defendants suggest, at a reduced payment in), the onus is on them to show they are unable to provide the required funds. 

19.  Although Mr Mok said in his 5^th affirmation that “all the account receivables in the current assets columns are either connected companies’ investments or credit balances which have been carried over for at least 10 years or more with the prospect of recovery virtually non-existent”, the analysis of the 7^th Defendant’s trial balances exhibited to Mr Chan’s affirmation shows the following accounts receivable which (in contradistinction to other entries) were not marked “non-recoverable”:-

-   Mok Wei Tak	$ 7,285,863.54
-   Feng Xiao Ping	$ 8,968,271.50

No explanation has been proffered as to why the 7^th Defendant has not taken any steps to recover these loans from Mr Mok and Mr Feng who control the Defendants. 

20.  It would also appear from the same analysis that a company called Express Million Development Ltd was lent $ 2,138,707.22 and a company called Intro United Development Ltd was lent $23,904,205.17 for investments in certain projects. Neither company is involved in these proceedings.  Neither loan has been marked “non-recoverable” or as “inter-company balances”.

21.  Nothing has been disclosed in Mr Mok’s affirmations about these loans.  It would appear that the Defendants’ own analysis is inconsistent with their assertion that they are unable to raise any funds and that must cast doubt on the reliability of the Defendants’ case on this application, where the burden is on them to show that they are unable to meet the condition of payment in.

22.  However I was prepared to reduce the amount of payment in having considered the updated valuations.  I have taken the average of the updated valuations referred to in the Plaintiff’s affirmation filed on 8 October 2010.  As for the Savills valuation, it would be noted that of the two comparables given, the higher one was based on “hearsay market news” only.  Accordingly I have not included this.

Order

23.  Deducting the approximate average of the valuations of the Charged Properties from the judgment sum with interest, I ordered that the condition of payment in (for a stay of execution of the order for possession) as ordered by Fok J be varied by a reduction of the sum of payment in to $70m. to be paid within 14 days.

Costs

24.  I also ordered that the Defendants pay the Plaintiff the costs of this application. As the Plaintiff has not prepared a gross sum estimate of costs, I ordered that costs be taxed if not agreed and to be paid in any event.