CAPITAL CENTURY TEXTILE COMPANY LTD v. LI DIANXIAO AND ANOTHER

CACV 471 & 472/2021 (Heard Together), [2024] HKCA 651

On Appeal From [2021] HKCFI 2216

CACV 471/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 471 OF 2021

(ON APPEAL FROM HCA NO. 263 OF 2012)

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CACV 472/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 472 OF 2021

(ON APPEAL FROM HCA NO. 263 OF 2012)

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(Heard Together)

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DECISION

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Hon Cheung JA (giving the Decision of the Court) :

I.  Stay of execution

1.  Before this Court are the 1^st and 2^nd defendants’ renewed applications by summonses dated 10 November 2023 and 31 May 2023 for a stay of execution of the judgment of Lisa Wong J (‘Judge’) dated 17 September 2021 and sealed on 27 October 2021, pending the disposal of their appeals to this Court in CACV 471/2021 and CACV 472/2021.

2.  The plaintiff opposes the applications. Having considered the papers and written submissions filed on behalf of the plaintiff and the defendants, we consider it appropriate to determine the applications on the basis of written submissions only without an oral hearing pursuant to Order 59, rule 14A(1) of the Rules of the High Court (Cap. 4A).

3.  In what follows, unless otherwise stated or indicated, we will adopt the abbreviations and nomenclature by the Judge in her judgment dated 17 September 2021 (‘Judgment’).

II.  The background leading to the Judgment

4.  By Writ of Summons dated 20 February 2012, the plaintiff (‘CCT’) commenced the action below against the 1^st defendant (‘Mr Li’) and the 2^nd defendant (‘Mr Cong’). According to its Amended Statement of Claim dated 20 March 2012 :

1)  CCT claims to be the past or current beneficial owner of the following real properties in Hong Kong, i.e., (1) the China Harbour Office, (2) the Eternal Building Flats, (3) the Provident Centre Flat, (4) the Pacific Palisades Flat and (5) the Tanner Garden Flat (‘the properties’).

2)  The properties have, at one stage or another, been registered in Mr Li’s name and were held on trust by Mr Li on behalf of CCT. By the time CCT’s action was commenced, Mr Li remained the registered owner of the China Harbour Office, whereas Mr Cong had become the registered owner of the Tanner Garden Flat, having acquired the same from Mr Li.

3)  On such bases, CCT sought declaratory reliefs and orders for an account from Mr Li and Mr Cong in relation to the properties.

5.  Mr Li and Mr Cong contested CCT’s claims. In short, Mr Li contended that CCT was not the beneficial owner of any of the aforesaid properties, whereas Mr Cong contended that he had acquired the Tanner Garden Flat from Mr Li as a bona fide purchaser for value. Notwithstanding Mr Li was imprisoned in the Mainland when these proceedings were ongoing, Mr Li was initially able to instruct lawyers to represent him until 26 September 2016 when he started to act in person.

6.  In May 2018, the trial of the action took place before the Judge. Mr Li did not appear in the trial nor did he give any evidence in support of his defence (Judgment [4(1)]). Whilst Mr Cong did tender himself, as well as his mother Mrs Cong, as witnesses at trial, the Judge found it necessary to approach their evidence with caution (Judgment [10]).

7.  On 27 September 2021, the Judge handed down the Judgment, finding that CCT was the past or current beneficial owner of the properties. In doing so, the Judge accepted the evidence of CCT’s witnesses which she found to be credible, plausible and supported by contemporaneous records and known facts (Judgment [9]).

8.  As the Judge found in the Judgment :

1)  CCT and its property-holding activities could be traced back to its relationship with the Beijing Company.

2)  The Beijing Company was a state-owned enterprise which carried out the business of the trading of knitwear export quotas (Judgment [24] and [40]). Mr Li was the employee of the Beijing Company from the 1980s to early 2001 (Judgment [13(1)]).

3)  CCT was the Beijing Company’s branch office/window company in Hong Kong starting from about 1990 (Judgment [24]). Prior to that, one Kingpower was the branch office/window company in Hong Kong (Judgment [18]).

9.  As far as the beneficial ownership of the various properties that this action is concerned with :

1)  Eternal Building Flats :

(1)  The Judge found that the Eternal Building Flats were originally acquired by Kingpower to be held on trust for the Beijing Company in 1989 (Judgment [21]).

(2)  The Eternal Building Flats were subsequently conveyed from Kingpower to Mr Li in 1990 (Judgment [23]‑[24]), with the intention that they were to be held by Mr Li on trust for CCT which had by then replaced Kingpower as the branch office/window company of the Beijing Company (Judgment [21], [24], [26], [27], [36], [37], [56] and [61]).

2)  China Harbour Office :

(1)  The Judge found that CCT had a practice of using bank accounts of Mr Li, Mr Zhang and Mr Zhong (who were all employees of the Beijing Company) to operate its business; and that the funds in these bank accounts belonged beneficially to CCT (Judgment [41]‑[44]).

(2)  Using funds in these bank accounts, Mr Li purchased the China Harbour Office in his name, and the China Harbour Office was intended to be held, and is still held, on trust by Mr Li for CCT (Judgment [44], [45]‑[54]).

3)  Provident Centre Flat and Pacific Palisades Flat :

(1)  The Judge found that they were also held on trust by Mr Li for CCT.

(2)  Among other things, the Judge found that CCT had directly funded the purchase of the Provident Centre Flat. The mortgage repayments of the Provident Centre Flat were also partially paid by the sale proceeds of the Eternal Building Flats (Judgment [55]‑[62]).

(3)  As for the Pacific Palisades Flat, its purchase was also directly funded by CCT out of the sale proceeds of the Provident Centre Flat (Judgment [76]‑[80]).

4)  Tanner Garden Flat :

(1)  The Tanner Garden Flat was originally registered in the name of CCT and subsequently acquired by Mr Li.

(2)  The Judge found that at the time Mr Li acquired the Tanner Garden Flat from CCT, Mr Li provided no consideration for it and thus he held the Tanner Garden Flat on resulting trust for CCT (Judgment [105]‑[114]).

(3)  When Mr Cong acquired the Tanner Garden Flat from Mr Li, Mr Cong did not take it free of CCT’s interest because he had notice of the same, and he did not actually pay any consideration for the Tanner Garden Flat. As such, Mr Cong must hold the Tanner Garden Flat on trust for CCT as well (Judgment [117]‑[133]).

10.  Having arrived at the conclusion that Mr Li held the China Harbour Office, and Mr Cong held the Tanner Garden Flat, on trust for CCT, the Judge made the following orders :

‘[157] For the above reasons, as against Mr Li :

(1) I declare that he held and still holds the China Harbour Office on trust for CCT.

(2) I further declare that he held these properties on trust for CCT: (a) the Provident Centre Flat; (b) Pacific Palisades Flat; and (c) the Tanner Garden Flat between 7 September 2004 and 3 July 2007.

(3) I order him to transfer the China Harbour Office to CCT or at its direction.

(4) I order him to account to CCT for the following:

(a) the rental income from letting the China Harbour Office since 2006;

(b) the net deposits forfeited from the aborted sale of the Provident Centre Flat in 1997;

(c) the net proceeds of sale of the Provident Centre Flat in 1998;

(d) the rental income from letting the Pacific Palisades Flat between 1998 and 2007;

(e) the net proceeds of sale of the Pacific Palisades Flat in 2007; and

(f) all the money and benefits received from holding the Tanner Garden Flat between 7 September 2004 and 3 July 2007.

(5) There shall be an inquiry into the aforesaid accounts to be rendered by Mr Li.

(6) I order Mr Li to pay CCT all sums found to be due from Mr Li to CCT on the taking of such accounts.

[158] As against Mr Cong :

(1) I declare that he has since 3 July 2007 been holding the Tanner Garden Flat on trust for CCT;

(2) I set aside the purported sale and purchase of the Tanner Garden Flat between Mr Li and him by the agreement for sale and purchase and the assignment both 3 July 2007 and respectively registered at the Land Registry by memorials numbers 07072601190012 and 07072601190027.

(3) I order him to transfer the Tanner Garden Flat back to CCT or at its direction.

(4) I further order him to account for all the money and benefits received by him from holding the Tanner Garden Flat since 3 July 2007.

(5) There shall be an inquiry into such account.

(6) I order Mr Cong to pay CCT all sums found to be due from him to CCT on the taking of such account.’

III.  Draft order/Sealed order

11.  On 5 October 2021, CCT submitted a draft order of the judgment (‘Draft order’) for the Court’s approval. The Draft order contains the following provisions :

1)  In addition to transferring the China Harbour Office to CCT or at its order and direction, Mr Li shall forthwith deliver vacant possession of the property together with all its title deeds and documents to CCT ([2]).

2)  In case Mr Li should default in transferring the China Harbour Office to CCT within 28 days, the Registrar of the High Court is authorised to execute all transfers, assignments and/or deeds necessary to transfer the legal title of the property to CCT or at its order and direction ([3]).

3)  In addition to transferring the Tanner Garden Flat to CCT or at its order and direction, Mr Cong shall forthwith deliver vacant possession of the property together with all its title deeds and documents to CCT ([14]).

4)  In case Mr Cong should default in transferring the Tanner Garden Flat to CCT within 28 days, the Registrar is authorised to execute all transfers, assignments and/or deeds necessary to transfer the legal title of the property to CCT or at its order and direction ([15]).

5)  Mr Li and Mr Cong shall pay CCT interest on all sums found and as may be found payable by them or each of them ([19]).

12.  On 6 October 2021, Mr Cong disputed only [19] of the Draft order, but did not express any view on the rest of the Draft order. In other words, notwithstanding that they were given an opportunity to do so, Mr Li and Mr Cong did not dispute that they should be ordered to deliver vacant possession of the China Harbour Office and the Tanner Garden Flat together with all the title deeds and documents. Nor did they contend that the Judge should not have invoked section 25A(1)(a) of the High Court Ordinance (Cap. 4) to authorise the Registrar of the High Court to execute the necessary documents to effect the transfer of the China Harbour Office and the Tanner Garden Flat to CCT.

13.  On 22 October 2021, CCT submitted for the Court’s approval a revised version of the Draft order (‘Revised Draft order’). The Revised Draft order removed the original [19] of the Draft order.

14.  The Revised Draft order was approved, sealed and filed on 27 October 2021 (‘Sealed order’).

15.  In the meantime, Mr Li and Mr Cong appealed the judgment by notices of appeal issued in CACV 471/2021 and CACV 472/2021 respectively. Since then, Mr Li and Mr Cong have both issued multiple supplementary notices of appeal in the appeals. As of now, Mr Li only relies on his 2^nd Supplementary Notice of Appeal dated 10 November 2023 and Mr Cong only relies on his 3^rd Supplementary Notice of Appeal dated 22 January 2024 in support of the stay applications.

IV.  The procedural background of the stay applications

16.  Mr Li and Mr Cong have not complied with the Judgment. Furthermore, they did not apply for any stay of execution against the Judgment until :

1)  In the case of Mr Cong, 11 July 2022, i.e. approximately 10 months since the Judgment was handed down; and

2)  In the case of Mr Li, 31 May 2023, i.e. more than 20 months since the Judgment was handed down.

17.  On 3 February 2023 and 14 September 2023 respectively, the Judge dismissed Mr Cong’s and Mr Li’s respective application for a stay of execution of the Judgment, and has handed down her written reasons for her decisions.

18.  By summonses dated 31 May 2023 and 10 November 2023 respectively, Mr Cong and Mr Li renewed their applications for a stay of the Judgment and the Sealed Judgment before this Court.

19.  The parties have filed affirmation evidence in relation to the stay applications. Written submissions were filed by CCT, Mr Li and Mr Cong.

20.  In sum, it is Mr Li and Mr Cong’s position that there are strong grounds in support of the appeals. Alternatively, they contend that the appeals are at least arguable and without a stay, the appeals will be rendered nugatory. In this regard, it is Mr Li and Mr Cong’s contention in evidence that the China Harbour Office and the Tanner Garden Flat will be ‘dissipated’, if they are transferred back to CCT.

21.  CCT disagreed with both contentions. It is worth highlighting at this juncture that :

1)  It is common ground that this action as well as the appeals are registered as lis pendens against the China Harbour Office and the Tanner Garden Flat at the Land Registry.

2)  CCT is prepared to undertake that it will not sell, mortgage or charge the China Harbour Office and the Tanner Garden Flat, pending the disposal of CACV 471/2021 and CACV 472/2021 or until further order of the Court (the ‘Undertakings’).

V.  Principles governing grant or refusal of stay of execution pending appeal

22.  The principles governing an application for a stay of execution of a judgment pending appeal are well established and are not disputed by the parties :

1)  The applicant is required to demonstrate a ‘good reason’ for a stay of execution.

2)  Generally speaking, the existence of merely an arguable appeal cannot by itself amount to a sufficient reason to justify a stay. It is the minimum requirement before a court would even begin to consider granting a stay.

3)  In other words, if the Court is not convinced that there exist arguable grounds of appeal, no stay will be granted however exceptional the circumstances may otherwise be justifying a stay of execution.

4)  On the other hand, the existence of a strong appeal or a strong likelihood of success will usually by itself enable a stay to be granted because this would constitute a good reason for a stay.

5)  In most cases, where the Court is faced with simply the existence of an arguable appeal, it becomes necessary for the applicant to provide additional reasons as to why a stay is justified.

6)  Commonly, this is done by demonstrating that without a stay the appeal would be rendered nugatory, for example, because of an appreciable risk that the respondent to the appeal would not be able to repay in the event of a successful appeal against a money judgment, or because the failure to grant a stay would have a serious deleterious effect on the applicant.

7)  In considering an application for a stay pending appeal, it would be impractical and even undesirable for the Court to go deeply into the merits or strengths of the appeal, although the Court must still form a preliminary view of these aspects.

See Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 per Ma J (as he then was) at [9]‑[10].

8)  While the existence of a strong appeal would tend to lead the Court to exercise its discretion in favour of granting a stay, the threshold is a high one. The Court has held that for there to be a ‘strong appeal’ such as would justify the grant of a stay without more, the situation must be one which would lead the Court to conclude that something has grievously gone wrong with the process of law in the Court below, or that the appellant is ‘almost bound to succeed’. Absent such a case, something more needs to be demonstrated: John Joseph Mc Gee v. Nold (HK) Ltd [2024] HKCA 354 per Barma JA at [30].

VI.  Discussion

1)  Strong grounds of appeals in CACV 471/2021?

23.  Mr Li advances altogether six grounds of appeals in his 2^nd Supplementary Notice of Appeal. In his written submissions, Counsel for Mr Li confirmed that Mr Li will not rely on Ground 8 in support of the application. Consequently, the Court only needs to assess whether Mr Li has demonstrated strong grounds of success in relation to the remaining five grounds of appeal.

24.  Mr Li’s contention in his 2^nd Supplementary Notice of Appeal may be broadly summarised as follows :

(1)  Ground 4 – the Judge was plainly wrong in finding that the China Harbour Office and the Provident Centre Flat were held on trust for CCT. This was because the terms of the 1996 Agreement (executed by Mr Li and the Beijing Company) suggested that the China Harbour Office and the Provident Centre Flat were intended to be held on trust for the Beijing Company, not CCT.

(2)  Ground 5 – the Judge was plainly wrong in finding that the various bank accounts in Mr Li, Mr Zhang or Mr Zhong’s name contained funds beneficially belonging to CCT. Accordingly, it was also wrong for the Judge to conclude that CCT had funded the purchase of various properties which formed the subject matter of this action.

(3)  Ground 6 – the Judge was plainly wrong in finding that the Eternal Building Flats were held on trust for CCT. Most critically, CCT was not incorporated at the time Eternal Building Flats were conveyed from Kingpower into Mr Li’s name. Accordingly, it is legally impossible for Mr Li to be holding the Eternal Building Flats on trust for CCT.

(4)  Ground 7 – the Judge was wrong in ordering Mr Li to give an account concerning his dealings with the Eternal Building Flats, the China Harbour Office, the Provident Centre Flat, the Pacific Palisades Flat and the Tanner Garden Flat. There was no basis to do so because Mr Li was himself the beneficial owner of these properties at all material times.

(5)  Ground 9 – the Judge erred in law in i) ordering Mr Li to deliver the vacant possession of the China Harbour Office, together with title deeds and documents thereof, to CCT, and ii) authorizing the Registrar of the High Court to execute all such necessary documents to facilitate such transfer in the case of non‑compliance by Mr Li. It was said that the Judge has no jurisdiction to do so because these reliefs have not been sought in pleadings or argued at trial.

25.  In accordance with established principle, we do not think that it is necessary or appropriate for us to express any detailed view on the merits of the appeals. Grounds 4, 5, 6 and 7 are all challenges to findings of fact made by the Judge. Ground 9 deals with the ambit of the Court’s power relating to the order granting possession of the property and requiring a party to transfer the title of a property. Having considered the parties’ submissions as well as the materials before us, we do not consider the appeals to be so strong as to justify the grant of a stay without more.

2)  Strong grounds of appeals in CACV 472/2021?

26.  We turn next to consider the strength of Mr Cong’s appeal.

27.  By his 3^rd Supplementary Notice of Appeal, Mr Cong contends that the Judge has erred in the following manner :

(1)  Ground 10 – the Judge erred in law in i) ordering Mr Li to deliver vacant possession of the Tanner Garden Flat, together with title deeds and documents thereof, to CCT, and ii) authorizing the Registrar of the High Court to execute all such necessary documents to facilitate such transfer in the case of non-compliance by Mr Cong. It was said that the Judge has no jurisdiction to do so because these reliefs have not been sought in pleadings or argued at trial.

(2)  Ground 11 – the Judge erred in finding that the Tanner Garden Flat was held on trust by Mr Cong for CCT. In so finding, the Judge failed to have regard to the fact that Mr Li, from whom Mr Cong acquired the Tanner Garden Flat, had provided valid consideration for his acquisition of the Tanner Garden Flat from CCT. As such, CCT did not maintain any interest in the Tanner Garden Flat at the time Mr Cong acquired the Tanner Garden Flat. It also follows that the Tanner Garden Flat could not have been held on trust by Mr Cong for CCT.

28.  Ground 10 is similar to Mr Li’s Ground 9. Ground 11 is a challenge to the finding of fact by the Judge. Again, having considered the submissions and materials before us, we are not persuaded that Mr Cong has demonstrated any strong ground of appeal.

3)  Appeal rendered nugatory in the absence of a stay?

29.  We next consider whether the appeals are arguable or not, and if so, whether the appeals will be rendered nugatory in the absence of a stay.

30.  Even assuming (but without deciding) that the appeals are arguable, we do not think that the appeals will at all be rendered nugatory in the absence of a stay. We say so for the following reasons.

31.  In support of the stay applications, Mr Li and Mr Cong suggested that there is a ‘real and imminent’ risk that CCT would ‘dissipate the landed properties’ if the China Harbour Office and the Tanner Garden Flat were transferred to CCT.

32.  We have no hesitation in rejecting such contention :

(1)  First and foremost, in view of the lis pendens registered against the China Harbour Office and the Tanner Garden Flat at the Land Registry, we do not believe that CCT can realistically sell these properties on the market before the disposal of the appeals. Any suggested risk of dissipation is therefore entirely fanciful.

(2)  Secondly, CCT has offered the Undertakings to this Court. There is no reason for this Court to doubt that CCT will honour the Undertakings, which will offer additional protection to Mr Li and Mr Cong pending the disposal of the appeals.

(3)  In any event, as canvassed above, Mr Li and Mr Cong have been entirely dilatory in seeking a stay of execution from the Judge or this Court. This does not sit well at all with Mr Li and Mr Cong’s contention that there is real risk that the appeals will be rendered nugatory in the absence of a stay.

33.  In addition, Mr Li also refers to [94] of the Judgment and suggests that the Judge has already found him to be the 95% beneficial owner of CCT. Mr Li therefore says that if he ultimately prevails in his appeal, and CCT is ordered to pay costs to him, he will in effect have to bear 95% of the costs incurred by CCT. As such, Mr Li says that he should be granted a stay to avoid any ‘unfairness’ caused to him as a result.

34.  We are not persuaded by Mr Li’s argument. For one thing, it is hard to see how the said ‘unfairness’ will render Mr Li’s appeal nugatory. At most, Mr Li will suffer some indirect financial loss. More importantly, if and insofar as Mr Li has any concern that CCT was not properly authorised to commence and prosecute this action, it is far too late for Mr Li to now complain about any alleged ‘unfairness’ when he has failed to any application to challenge the commencement of the action itself at all since the action was commenced in 2012.

VII.  Conclusion

35.  In the premises, upon the Undertakings offered by CCF, the stay applications in the two appeals are dismissed. Costs should follow the event. Mr Li and Mr Cong shall pay CCT the costs of their respective application to be summarily assessed.

36.  CCT has filed separate statement of costs in the two appeals. In assessing CCT’s costs, we have taken into consideration: 1) the costs are assessed on party-and-party basis; 2) CCT was represented by the same legal team at trial and in the stay applications made to the Judge; 3) the documentation in these applications are not voluminous and the issues and arguments are not complex; 4) the issues and arguments are more or less the same as those in the applications made to the Judge; 5) the two applications are dealt with together; and 6) there are substantial overlapping in the grounds of appeal in the two appeals, and in turn the arguments in the two applications.

37.  We are accordingly of the view that :

1)  The stay applications do not warrant the engagement of two counsel, and only allow one counsel’s fee should be allowed;

2)  The costs of preparing statement of costs should not be allowed: Practice Direction 14.3 at [13];

3)  No costs are allowed for preparing and attending hearing as the applications are dealt with on paper;

4)  In respect of Mr Li’s application in CACV 471/2021, the time spent on items C1 (LE’s attendance on client), C5 (LE’s attendance on counsel), and D2 (perusal of documents) and the amount of item E (counsel’s fees) are excessive and should be revised downwards; and

5)  In respect of Mr Cong’s application in CACV 472/2021, the time spent on items C1 (LE’s attendance on client), C2 (RW’s attendance on Mr Cong’s solicitors), C4 (attendance on court), C5 (LE’s attendance on counsel) and D2 (perusal of papers); and amount of item E (counsel fee) are excessive and should be revised downwards.

38.  Taking a broad-brush approach, we summarily assess CCT’s costs for Mr Li’s application at $80,000, and its costs for Mr Cong’s application at $100,000.