XCHRX CHINA EVERBRIGHT - IHD PACIFIC LTD. v. CH'NG POH

HCA 12837/95

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12837 OF 1995

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REASONS FOR DECISION

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1. Pursuant to the Judgment in this action which was handed down on 27 February 2001, the Defendant has issued a Summons for a stay of execution pending appeal, and the Plaintiff has issued a Summons for release of funds standing in the joint accounts of the parties' respective solicitors. The funds held in the joint accounts were (as at 28 February 2001) $269,302,116.20. The calculation of the Judgment sum inclusive of interest from 17 August 1985 to the date of Judgment is agreed at $336,310,069.67. The shortfall is about $67m.

2. At the conclusion of the hearing, I ordered that upon the Plaintiff undertaking to provide a guarantee or guarantees from a first-class bank for the payment of sums paid by the Defendant pursuant to the Judgment for the repayment to the Defendant in the event that he is successful on appeal, the funds in the joint accounts be released to the Plaintiff to satisfy part of the sum due and payable to the Plaintiff under the Judgment and that the Defendant's solicitors cause and procure the execution of all necessary documents to enable that release forthwith, and I dismissed the Defendant's Summons for a stay. I said I would provide written reasons for that decision and I do so now.

3. The Court has of course an unfettered discretion to grant a stay of execution. However it has to start with the assumption that a party should not be deprived of the fruits of a judgment unless there was good or sufficient reason for doing so. The fact that an appeal is proposed to be lodged (or even is pending) by itself is not a good or sufficient reason.

4. In the present case, the Defendant contends that there are other special circumstances warranting a stay. He says that there is a risk that the Plaintiff may not be able to repay the sum in the event of a successful appeal, or at least that the recovery of the sum may be difficult if funds are injected into long-term investments on the Mainland, the disposal of which assets may be subject to special approval which may not be readily forthcoming.

5. The Defendant has filed two affirmations to the effect that the Plaintiff's parent company China Everbright Holdings Ltd (CEHL) is heavily in debt, and that the Plaintiff would be likely to transfer cash to CEHL as it had done recently in a transaction for the acquisition of shares in the China Everbright Bank from CEHL. Mr Strachan QC for the Defendant has also pointed to the reduction of the Plaintiff's "cash in hand" from nearly $2.5b. as at 30 June 2000 to $1.5b. as at 14 March 2001 being the date of the 3rd affirmation of Lee Yim, the Group Legal Counsel and Company Secretary of the Plaintiff.

6. The Defendant has therefore suggested that either (i) the funds in the joint accounts be transferred into a sole account of the Plaintiff's solicitors and be left there pending the appeal, and that there be a stay of payment of the shortfall; or (ii) that the Plaintiff extend its offer of a bank guarantee for the repayment of all sums that may be paid pursuant to the Judgment, the Plaintiff having previously offered a guarantee for the repayment of the funds standing in the joint accounts.

7. Mr Coleman for the Plaintiff has on instructions informed the Court that the Plaintiff would be prepared to so extend its offer of a guarantee, although he submits there is no need for one.

8. In my view, there is no or no sufficient material before the Court to substantiate the Defendant's allegations about the poor financial health of CEHL such as to lead to the inference that the Plaintiff might not be able to repay the sum in the event of a successful appeal.

9. However, I can see the Defendant's concern about difficulties that may be encountered in recovery should the sum be turned into assets on the Mainland, the disposal of which may be subject to approvals which may take time. The fact that a company has a particular cash balance on a particular date is not relevant, because cash balances vary from day to day depending on the company's use for funds. The Court could of course impose a condition that the Plaintiff retain the sum in Hong Kong or permit the sum to be invested only in investments that could be realised easily. However, that would probably be less convenient to the Plaintiff than the guarantee, extended in scope, that has been offered.

10. Accordingly, I made the order set out in the second paragraph above.