TRADEPOWER (HOLDINGS) LTD (IN LIQUIDATION) v. TRADEPOWER (HONG KONG) LTD AND OTHERS

CACV 101/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 101 OF 2008

(ON APPEAL FROM HCA NO. 1796 OF 2005)

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REASONS   FOR   JUDGMENT

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Hon Tang VP:-

1.  I agree with the reasons for judgment of Reyes J.

Hon Reyes J:-

I.   INTRODUCTION

2.  Holdings (in liquidation) sued the Defendants to set aside a Deferred Shares Scheme effected by the Defendants.

3.  By the Scheme Girvan obtained control of Tradepower.  This was achieved through Girvan's acquisition of newly-created “B” shares with voting rights.  On the other hand, Holdings (which had controlled Tradepower before the Scheme) was left with “A” shares having no voting rights and no prospects of a dividend or other return on assets.

4.  Holdings failed at trial before Recorder Jat SC.  But Holdings won on appeal.  The Court of Appeal (Rogers VP, Le Pichon JA and Chung J) declared that the Scheme had been set up with the intention of defrauding Holdings’ creditors.  It ordered that the Scheme be set aside.  Consequently, Holdings’ liquidators gained control of Tradepower from Girvan.

5.  The Defendants sought a stay of the Order setting aside the Scheme pending determination of an application for leave to appeal to the Court of Final Appeal.  Rogers VP refused a stay.  The Defendants then asked this Court to review Rogers VP’s refusal.

6.  We dismissed the Defendants’ application.  We also awarded the costs of the application to Holdings.  These are the reasons for our decision.

II.  DISCUSSION

7.  Mr. Colin Wright (appearing for the Defendants) argued that refusing a stay would render an appeal to the Court of Final Appeal nugatory.  He submitted that there were 3 reasons for this.

8.  First, Mr. Wright suggested that, without a stay, Holdings could cause Tradepower to sell certain Properties (with an estimated current value of over $20 million).  Thereafter, Holdings would procure Tradepower to declare a dividend to enable the sale proceeds to be paid to Holdings and to be used to discharge a US$977,654.35 debt due to Elimor.  Elimor is a BVI company and Holdings’ sole major external creditor.  The monies paid to Elimor would then effectively be lost (Mr. Wright argued) to the Defendants should they win on appeal and recover control of Tradepower.

9.  Second, Mr. Wright submitted that, without a stay, Holdings’ liquidators could obtain documents (in Tradepower’s possession) containing legal advice passing between Tradepower and its lawyers in relation to these proceedings.  Although such documents would be subject to legal professional privilege (LPP), the liquidators could cause Tradepower not to assert the privilege.  That would be unfair to the Defendants (who all share the same legal advisers) in the prosecution of an appeal, since Holdings would be privy to the strengths and weaknesses of the Defendants’ case as disclosed in those documents.

10.  Third, Mr. Wright argued that, as against Tradepower, Holdings could proceed to tax the costs of the 1st instance and appeal proceedings without reference to the other Defendants.  Holdings would then cause Tradepower to pay to Holdings any costs certified upon taxation.  There would be little hope of recovering such payment (Mr. Wright argued) from an insolvent Holdings if the Defendants succeeded on appeal.

11.  We were not persuaded by Mr. Wright’s submissions.  We did not think that the refusal of a stay rendered any further appeal nugatory.

12.  First, Holdings’ liquidators have undertaken to provide the Defendants with 14 days’ notice of any sale of the Properties.  Such notice would be more than enough to allow the Defendants (if they thought it appropriate) to apply to the Court for an injunction to restrain the proposed sale.

13.  The liquidators gave such undertaking at the stay hearing before Rogers VP.  Mr. Wright said that Rogers VP elicited the undertaking from Holdings at that hearing.  Mr. Wright asserted that an “important principle” was accordingly at stake in that a party should not be able to avoid a stay by giving an undertaking at the eleventh hour.  If a stay was warranted, Mr. Wright contended that it should have been granted despite the late undertaking.

14.  We do not believe that there was any “important principle” involved.  Nor do we accept Mr. Wright’s suggestion that, but for the undertaking, a stay would have been granted by Rogers VP.

15.  The fact is that the liquidators have re-affirmed that undertaking before this Court.  Whether the undertaking should have been made at some earlier time is simply a matter to be taken into account in awarding costs at the end of the day.

16.  Further, Girvan has commenced proceedings against Holdings by the issue of a writ.  In those proceedings, Girvan alleges an equitable interest in the Properties arising from the payment of mortgage instalments in respect of the same.  Girvan has registered its writ as a lis pendens.

17.  This means that, regardless of the undertaking given by the liquidators, any sale of the Properties would inevitably have to be notified to Girvan.  Given that the registration of the writ operates as a blot on the title to the Properties, in practical terms it is difficult to see how a bona fide purchaser of the Properties could proceed without at least informing Girvan of the intended transaction.

18.  Second, before this Court, Holdings’ liquidators have undertaken not to procure Tradepower to disclose to them any documents subject to LPP.  The undertaking is workable.  The Defendants can identify the documents (if any) against which LPP is claimed.  The documents having been identified, steps can be taken to prevent them being handed over to the liquidators.

19.  In referring to this second undertaking, we should not be taken as meaning that the liquidators needed to offer it or otherwise we would grant a stay.  Any legal advices given to the Defendants jointly would be subject to LPP in respect of all the Defendants.  That LPP could not be waived by only one Defendant (Tradepower) without permission from the others.  Thus, even without the second undertaking, the liquidators could not use control of Tradepower to obtain sight of confidential documents.

20.  Third, before this Court, the liquidators have undertaken to give 14 days’ notice of any proposed application to tax Holdings’ costs as against Tradepower.  Such notice would enable the other Defendants to take any necessary steps to protect their interest, including applying to the taxing master to be heard in the taxation as relevant parties.  In the event that a sum is certified as costs due from Tradepower to Holdings, the other Defendants could apply to the master for a stay of payment pending a final appeal.

21.  The third undertaking volunteered by the liquidators should allay any fears on the Defendants’ part that costs may be paid to Holdings without their knowledge.  We do not believe, given this third undertaking, that taxation could proceed against Tradepower alone without the Defendants being aware of the same.

22.  It should not be assumed that we consider the third undertaking to have been necessary.  If a party proceeds to taxation despite a possible appeal, that party risks the time and cost expended on such taxation becoming wasted if the appeal should succeed and previous costs orders are overturned.  It is doubtful that, purely as a matter of Court procedure, taxation against Tradepower could proceed without all parties to the proceedings being given notice.  As to the payment of any sum certified by a taxing master, there is always the possibility of seeking a stay of that payment pending appeal.

III. CONCLUSION

23.  For those reasons, we dismissed the Defendants’ application for a stay.

24.  On costs, like Rogers VP, we found no reason to depart from normal practice in a stay application.  The mere fact that undertakings were proffered, does not mean that the application for a stay was justified in the first place.  Thus, the Defendants having failed in their application, they should pay the costs, such costs to be taxed if not agreed.