OCBC WING HANG BANK LTD v. WOO KOO PING AND OTHERS

HCA 2377/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2377 of 2014

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D E C I S I O N

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1.  This is an application by the 1^st and 2^nd defendants for a stay of execution pending an appeal to the Master against a summary judgment.

2.  In 2013, the plaintiff bank (“the Bank”) granted borrowing facilities to KCK Garment Factory Ltd (“the borrower”).  The borrowing was a guaranteed by the 1^st, 2^nd, 3^rd and 4^th defendants.

3.  In November 2014, the Bank made demand upon all the defendants for repayment of sums advanced to the borrower and then outstanding.  No payment has been made by any of the defendants.

4.  A writ was issued on 21 November 2014.  On 18 March 2015, the 1^st to 3^rd defendants filed a defence, the essence of which was that the 1^st and 2^nd defendants had signed the guarantees “in their capacity as directors” of the borrower and “not on their personal capacity”, and that the guarantees “breached the equitable principle”.  The “equitable principle” alleged to have been breached was not particularised.

5.  On 22 May 2015, the Bank filed a summons for summary judgment against the 1^st, 2^nd and 3^rd defendants pursuant to Order 14, rule 1 of the Rules of the High Court (“RHC”).

6.  On 27 January 2016, the Master entered judgment against the 1^st, 2^nd and 3^rd defendants for the sum of HK$5,597,969.83 and US$173,827.05.

7.  On 11 February 2016, the defendants filed a notice of appeal to a judge in Chambers against the decision of the Master.  The defendants, despite having given notice of appeal on 11 February 2016, did not initiate steps to fix the date for the appeal until 30 May 2016.  The appeal is now set to be heard on 2 November 2016.

8.  On 30 June 2016, the defendants filed the application to stay execution, now before me.  No affidavit was filed in support of the summons.  When faced with a bankruptcy petition before Ng J on 4 July 2016, the solicitor for the 1^st defendant undertook that an affidavit supporting the application for stay of execution would be filed by 11 July 2016.  The affidavit was not filed until 15 July 2016, and then only after the Bank’s solicitors had reported the breach of the undertaking to the bankruptcy judge.

9.  The affidavit asserts that the defendants have been advised by their legal advisers that they have reasonable grounds for the appeal, although no grounds are set out in the affidavit.  The principal content of the affidavit is an assertion that the 1^st and 2^nd defendants have substantial assets which are tied up in companies the subject of a liquidation proceeding, and that it is expected that the companies can be restructured, thereby enabling the defendants to satisfy the judgment.

10.  The relevant principles governing a stay of execution pending appeal are well known, and are set out in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84. In so far as this case is concerned the following principles are relevant:

(i) It is in the court’s discretion whether or not to grant a stay.

(ii) A stay will not be ordered unless the defendant can justify a stay, and the practice of the court is that justification can be demonstrated only if good reasons exist.

(iii) The merits of the appeal, and whether the appeal will be rendered nugatory, are matters which may go to whether good reasons exist.

(iv) However exceptional the circumstances may be otherwise justifying a stay, if the court is not convinced that there exist arguable grounds of appeal, no stay will be granted, and so the existence of an arguable appeal is a pre-requisite for the grant of a stay.

(v) The court would have to form a preliminary view of the merits and strengths of an appeal, but the existence of an arguable appeal is only the minimum requirement.

(vi) The court must not at any stage forget the position of the successful party.  It must consider the prejudice that would be caused to the successful party in the event that a stay is granted.  The starting point is that the successful party is not to be deprived of the fruits of his success.

11.  In the present case, there is simply no basis upon which the appeal might be successful.  At the hearing before the Master, counsel for the defendants did not suggest that there were any triable issues, but opposed summary judgment, asserting that the Bank should sue the borrower first, and challenging the amount due.

12.  There was a complete answer to the first point, in that the guarantee contained a provision in which the defendants waived any right they may have to require the Bank to first proceed against the borrower.

13.  That is a perfectly normal provision in a guarantee, and protects the lender against the exigency, as happened here, that the borrower may be in liquidation.  The term was clear in the guarantee, it was pleaded in the statement of claim, and nothing was pleaded which might suggest that the term should not be applied.  There was no obligation on the Bank to proceed against the borrower before proceeding against the guarantors.

14.  There was a complete answer to the second point, namely a “conclusive evidence” clause in the guarantees.

15.  That too is a perfectly normal provision in a guarantee.  The utility of “conclusive evidence” clauses in proving quantitative indebtedness is well accepted: see Andrews & Millet, Law of Guarantees, 7^th Edn, §§7–032 to 7–033.  The principle has been upheld in a numerous Hong Kong cases, eg Citibank NA v Dayaram Nanik & Anor (unreported HCA 2145/2011, 3 June 2013, per DHCJ Le Pichon at §§40 – 42, 50 – 51).

16.  A “conclusive evidence” clause refers to an “manifest error” which means an error which is “obviously or easily demonstrable without extensive investigation”: see IIG Capital LLC v Van Der Merwe [2008] 2 All ER (Comm) 1173.

17.  Mr Lo was plainly right in his submission to the Master that absent any “manifest error” in the Bank’s statements, and none were suggested, those statements are conclusive evidence against the defendants.  It is correct that an adjustment was made in favour of the defendants in the sum of US$1,098.90.  It is not appropriate to carry out an extensive investigation.  In ABN Amro v McGinn [2014] EWHC 1674 (Comm), it was held that to hold otherwise:

“... would render the conclusive evidence clause nugatory. The whole point of that clause is to preclude this sort of dispute as to quantum.”

18.  An adjustment of US$1,000, in the context of a total claim of HK$5.5 million and US$170,000 does not constitute a manifest error.  The defendants have been unable to suggest any other errors on the face of the documents.

19.  The suggestion in the defence that the guarantor has signed “in his capacity as a director and not his personal capacity” is a concept that is quite incapable of argument, let alone founding a basis upon which a guarantee might not be enforced, or upon which leave to defend might be given.

20.  The extraordinary suggestion in the defence that there has been a “breach of the equitable principle” without any particulars at all, provides neither a basis upon which leave to defend might be given, nor a basis to appeal against summary judgment.

21.  The affidavit in support of the application for stay relies upon a proposed so-called restructuring of five companies which own a piece of land in Guangdong province valued by Knight Frank at RMB267 million. The defendants impliedly rely on the restructuring to contend that the levying of execution would result in serious financial consequences for them.

22.  It is further said in Star Play, that where the levying of execution would result in financial ruin or serious financial consequences for the appellant, the court will require good evidence to support this contention, such as the production of accounts or other documents to justify the assertion.  A bare assertion is unlikely to meet with much sympathy where more substantial evidence is available.  The affidavit in support has been so poorly prepared that contains the following sentence:

“I own 67% of the shares in Mastery Gain Ltd, a BVI company that ultimately owns, among others, the following five companies, (list out names of the five companies the subject of 297-301).”

23.  It is difficult put any weight at all on an affidavit that does not even bother to set up proper particulars of what are being contended to be “exceptional circumstances”.  The affidavit asserts that the Guangdong land is owned by Kokin Ltd.  Nothing is said, or demonstrated by exhibit, to establish the relationship between that company and Mastery Gain Ltd.

24.  No accounts were exhibited, no other proceedings were exhibited, no statement was obtained from the liquidators of the five companies.  The affidavit asserted that Deloitte’s had been instructed to assist with the restructuring of the companies.  There was no evidence from Deloitte’s as to the progress of, or the likelihood of success of, the so-called restructuring.  It is said that the parties appeared before the Companies Judge on 14 July 2016, and had been given directions to return to the court on 22 August 2016, to report on the progress of the restructuring.

25.  Late last night a second affidavit was filed by the applicants for stay of execution.  That exhibits a letter dated from Baker Tilley, Hong Kong, Chartered Accountants and “Restructurers”.  There is no evidence as to how Baker Tilley are involved in this matter, an essential fact having regard to the earlier statement as to the involvement of Deloitte’s.

26.  The letter is addressed to a company called Lei Shing Hong Credit Ltd, which, the affidavit implies, is a potential purchaser of the Guangdong land.  The letter refers to a meeting on 23 June 2016.  The letter does nothing more than suggest that there ought to be a meeting for further discussion as a result of which Lei Shing Hong might be able to undertake further due diligence.

27.  The letter takes the matter no further.  It does not comment on the likelihood of the success of the restructuring.  In fact it shows that the restructuring has not yet even reached the stage where it could be said that any substantial progress has been made.  At the very best it says that there is a buyer looking at the land who might one day make an offer, but even that cannot be assured.

28.  I am satisfied that there is simply no arguable basis for the appeal.

29.  In the absence of any reasonable grounds of appeal it is entirely irrelevant that at some stage in the future, as a result of some restructuring of some other companies, said, but not established to be linked to the defendants, the defendants might be in a position to make payment of the amount due.  The suggestion of a future ability to make payment is so vague in the circumstances that it is quite unable to justify the Bank being held out of the fruits of its judgment any longer.

30.  In a case where there is no reasonable ground of appeal then the fact that the appeal might be rendered nugatory is irrelevant.

31.  For the foregoing reasons the application for the stay of execution is refused.

32.  Mr Ng does not oppose costs following the event, but does oppose a certificate for counsel, on the basis that the hearing was a call over hearing only.  Mr Lo, perfectly sensibly, and quite rightly in the circumstances, said in his skeleton that although this was a call over hearing, it was a matter which the court could deal with summarily.

33.  He was quite right.  It was appropriate for counsel to come to court fully prepared to argue this matter, even though I have not had to hear from him.  I have not had to hear from him because there was nothing in the defendants’ submissions that required an answer, and Mr Lo’s skeleton was completely comprehensive of the matter.

34.  There will be an order that the defendants seeking stay must pay the Bank’s costs on the application, on a party and party basis, with a certificate for counsel.