BRILLIANT CATERING MANAGEMENT LTD v. GLAD SUCCESS INDUSTRIES LTD AND ANOTHER

DCCJ 4098/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL JURISDICTION 4098 OF 2007

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DECISION

1.  The present action concerns a tenancy agreement dated June 2007.  BCM (the Plaintiff) was the landlord.  GSI (the 1^st Defendant) was the tenant and D’Oliveira (the 2^nd Defendant) was the guarantor.  BCM claimed for rent in arrears (since August 2007), possession and mesne profit.

2.  Interlocutory judgment was entered last October.  Charging order and writs of possession and fi fa followed.  The Defendants applied to set aside the default judgment in March this year.

The Defence

3.  The proposed defence is by no means a straightforward one.  GSI is a company of which Yuen and D’Oliveira are shareholders and directors.  The couple are also cohabitants, together with Yuen’s 2 children, at the property now subject to the tenancy.  GSI used to be the owner of the property.  In the course of obtaining a loan, D’Oliveira was allegedly lured by third parties into executing, purportedly as the lawful attorney of GSI, various documents transferring the property from GSI to BCM.  That was how BCM became the owner of the property last June.  One of these documents executed was the tenancy agreement in question whereby BCM let the property back to GSI.

4.  It is alleged that all these documents were part of a sham.  GSI and Yuen claim no knowledge about this alleged sham.  No consideration as represented by these conveyancing documents has ever passed from BCM to GSI.  D’Oliveira also claims none of these documents was ever understood or intended to evidence what they read.  As such these documents and transactions were all void, voidable, unconscionable or unenforceable.

5.  On the above basis, GSI and D’Oliveira commenced action against BCM in the High Court early this month (HCA 547/2008) essentially for declaration to that effect.

6.  For the purpose of the appeal, both BCM and GSI engaged in a battle of affirmations during the last 2 days, the last one of which was received by this court this morning.

7.  By these most recent affirmations, BCM sought to rebut GSI’s allegation that it has never authorised D’Oliveira to deal with the property, certainly not to transfer the property to BCM.  BCM produced the actual board resolution of GSI and the irrevocable power of attorney in favour of D’Oliveira as well as the guarantee executed by her.  In reply, Yuen of GSI affirmed and explained that he was arranged to sign these documents either in blank or without knowing their content or effect.

The interim stay

8.  The summons for setting aside the judgment was last heard on 9 April 2008 when it was adjourned for argument.  Later on the same day, GSI and D’Oliveira applied for interim stay of execution of the judgment pending the determination of the application to set aside.

9.  In the middle of the hearing before the Master, the solicitors who had all along been acting for both GSI and D’Oliveira decided to cease acting for D’Oliveira, perceiving potential conflict of interest between the 2 Defendants.  D’Oliveira has since been acting in person.

10.  At the end of the hearing, the Master granted the interim stay on the following conditions:

(1)  The Defendants shall pay HK$50,000 into court by noon of the following day, i.e., 10 April.

(2)  The Defendants shall pay another HK$500,000 into court by noon of 23 April.

11.  The Master made the following order as to costs of the application for the interim stay of execution:

(1)  Half of the costs of the application shall be in the cause of the Defendants’ application to set aside.

(2)  Half of the costs of the application shall be paid by the Defendants to BCM to be taxed if not agreed.

12.  The Defendants made the first payment of HK$50,000 into court by 10 April as ordered.  Today is supposed to be the deadline for complying with the condition of the second payment of HK$500,000.  However GSI appeals against the Master’s order.  D’Oliveira is present today.  But since this is only GSI’s appeal, she has no right of audience today.

The appeal

13.  According to the marginal note of the summons for interim stay, the application for interim stay of execution was taken out pursuant to O.13, r.9 of the Rules of the District Court or inherent jurisdiction of the court.  No point seems to have been taken about such jurisdictional basis in the hearing before the Master or this court.  However, misconception like this should not be left uncorrected.

14.  O.13, r.9 needs no explanation; but how this rule provides the basis for the Defendants’ current application is hard to understand.

15.  Miss Ho appearing for GSI today apparently endorsed the position that this court has an inherent jurisdiction to stay the execution of judgment, apart from those situations expressly permitted under the rules of the court.  I wonder how this could be correct in this court, the jurisdiction of which is conferred by the District Court Ordinance.  Miss Ho cited Credit Lyonnais v SK Global HK Ltd [2003] 4 HKC 104 but the order to stay execution there was in the first place made by the High Court which no doubt has inherent jurisdiction.

16.  At most, the Defendants may say that the District Court has general ancillary jurisdiction, i.e., the same power as the Court of the First Instance in any proceedings before it, to grant the relief or redress either absolute or conditionally which ought to be granted or given: section 48 of the District Court Ordinance.

17.  Reliance on the ancillary jurisdiction of the court, if applicable, is not necessary because O.45, r.11 should apply for the Defendants’ purpose.  O.45, r.11 provides that an application for stay of execution could be made on the ground of matters which have occurred since the date of the judgment or order, and the court may by order grant such relief, and on such terms, as it thinks just.  These may be matters which, if established before the court, might justify the court in saying that this was a judgment which on the material now before it, it would not allow it to be executed: Hong Kong Civil Procedure 2008 at 45/11/2.

18.  On the basis of their application to set aside the default judgment, the Defendants applied for the interim stay of execution.  Before me, there is no issue of whether the interim stay should be granted.  The only issue is whether the stay should be on conditions as ordered by the Master.

19.  Miss Ho for GSI submitted that: (1) it is premature for the court to impose condition on the stay; and (2) the conditions were plainly excessive.

Merits of the application to set aside

20.  Whether a stay of execution of the judgment should be ordered and, if yes, whether conditionally or not during the interim involves the consideration of the entitlement of BCM to the fruit of the judgment and the effect of execution without stay on the exercise of right of GSI and D’Oliveira to attempt bringing their case back to life.

21.  Merit of the application to set aside the very judgment is one important consideration.  The solicitors appearing for GSI and D’Oliveira (as they then were) conceded before the Master that the judgment was regularly obtained.  By the affirmation of GSI’s solicitors received this morning, GSI stated its intention to retract the concession and to seek to argue that the judgment was irregularly obtained.  Here I see the first difficulty in their case.

22.  On the basis that the judgment is regular, whether the Defendants’ case has a reasonable prospect of success and whether the judgment, if to be set aside, should be set aside conditionally or not will be a matter for the judge hearing the application.  I summarised above the proposed defence.  For the present purpose, it suffices for me to say that they expect an uphill battle.  This is the second difficulty I see in their case.

23.  Having said that, I note from the submissions of Mr Chan for BCM today that even BCM admits that the tenancy agreement was part of the loan arrangement as stated in D’Oliveira’s affirmation.  This was therefore not a straightforward tenancy arrangement.  Amongst other things, how the tenancy agreement came about needs to be looked into.  Of course there is the related High Court action.  Despite its difficulties of the defence mentioned above, I am not prepared to rule out its prospect in the setting aside application.

24.  For the avoidance of doubt, my observation above is not to be taken by the parties to stand in the way of the judge’s determination and exercise of discretion in hearing the summons to set aside the judgment in June.

Premature condition

25.  Miss Ho submitted that the court should decide whether to impose condition on the stay only after the hearing of the Defendants’ application to set aside the default judgment.  I do not follow the logic of that.  This is an application for interim stay of judgment until the court decides whether the judgment should be set aside.  If the judgment is set aside, there will be nothing more to enforce or stay and parties will be expected to actually dispose of the pending enforcement proceedings properly.  If it is not set aside; or set aside conditionally but the condition is not fulfilled, then the judgment remains to be enforced without stay unless of course there is ground for another application for stay of execution.  I do not see how the decision as to whether conditions should be attached to stay of execution of judgment now should depend on the decision to set aside the judgment or not.

Excessive condition

26.  In saying that the conditions imposed are plainly excessive, Miss Ho for GSI is referring to the amount of payment into court.  She noted that the annual rateable value of the subject property was just over HK$205,000.  She submitted that the condition of payment into court now imposed amounts to “more than 2 years of the rateable value” of the property.

27.  I do not see the relevance of the rateable value.  The monetary part of the judgment is for rent in arrears plus mesne profit at the rate of the contractual rental, which is in excess of HK$100,000 per month.  8 months have elapsed since the default (last August) till now.  Nothing could be said about the amount being less than the judgment amount accrued by the time of the Master’s order.

28.  Of course, the amount may still be excessive if it exceeds the financial ability of GSI.  Miss Ho took this point and relied on cases in the context of setting aside default judgment, granting leave to defend in a summary judgment application and security for costs of appeal against foreign appellant.

29.  I understand that the summons for setting aside the judgment will be argued on 20 June, just 2 months from now.  Execution of the judgment will entail D’Oliveira, Yuen and his children having to vacate from the property and the chattels in the property being seized.  I do not know how realistic BCM will manage to dispose of the property during the interim.  From the transcript of the hearing before the Master, solicitor for BCM seemed to acknowledge that it is not likely.  I am not sure how realistic BCM will manage to let the property during the interim either.  In any event, I wonder whether the rent will be any sum near the rental under the tenancy agreement.  One way or the other, while BCM is no doubt entitled to the fruit of the judgment, I wonder how fruitful it will be to BCM’s position to execute the judgment during the interim of these 2 months.

30.  The Master did address the issue of the financial ability of GSI, after indicating that a condition of payment into court would be required.  Through its solicitors, the probability of raising the amount of HK$500,000 for the condition was suggested.  Willingly or not, GSI put forward this figure and it must be taken to mean it.  Now by his recent affirmation, GSI explained that despite effort, this sum has become beyond the ability of GSI.  Bank documents tending to show the dire financial condition of Yuen and GSI are produced.

31.  This is not supposed to be a ‘balance of convenience’ exercise.  But the court has to consider overall justice and to facilitate the administration of justice.  The reality is that on the basis of Yuen’s recent affirmation and evidence, GSI is not able to come up with the amount which it suggested for the condition of payment into court.  If BCM proceeds to execute the judgment now, which entails the consequence to GSI (which held the residential property for the use of Yuen, D’Oliveira and their family) as mentioned above, it will be difficult to restore its pre-judgment position even if the judgment is eventually set aside.  The prospect of setting aside the judgment will become meaningless.

32.  Considering all the circumstances of the parties, I believe justice is best served that the execution of the judgment be stayed in these 2-month interim subject to condition of payment into court but not for an amount which the Defendants cannot put up.  I therefore set aside the part of the Master’s order setting the condition of payment of HK$500,000 into court.  I do not intend to disturb the Master’s order setting the condition of payment of HK$50,000 into court, which has actually been complied with.

Order

33.  I set aside paragraphs 1(b) of the Master’s order dated 9 April 2008 insofar as the same concerns GSI.

34.  Strictly, I cannot do anything about the Master’s order insofar as the same concerns D’Oliveira.  However, since she does not have any interest in the property in question, whether as owner or tenant, but is sued as the guarantor of GSI’s liability under the tenancy agreement, it is not likely that BCM will seek to execute the judgment against her while the same against GSI has been stayed for the time being.

[Counsel submits on costs below and of this appeal]

Costs

35.  This case warrants the consideration and imposition of condition on the interim stay of execution of the judgment.  I only differ from the Master on the amount of payment into court.

36.  Further I understand that the Master made the costs order partly because of how the application was conducted before her and how this has prolonged the hearing (from 5:20 to 6:40 pm that day).  Her exercise of discretion for that, which did not have to do with the merit of the application, should not be lightly disturbed.

37.  Irrespective of whether it agreed with the Master or not, GSI gave instruction and suggested the possibility of raising HK$500,000 for the condition of payment into court.  I am not prepared to accept that GSI did so unwillingly or out of no choice.  GSI suggested this amount and must be taken to mean it, whatever concern it might have.  I differ from the Master mainly because of the recent affirmation filed on behalf of GSI, supplying evidence of its actual financial condition, for this appeal.  If there is a degree of success in this appeal, this is due to my accepting what the most recent affirmation filed on behalf of GSI says.

38.  Considering the above, Miss Ho for GSI concedes that she would not seek to disturb the costs order made by the Master below.  Paragraphs 3 and 4 of the Master’s order therefore stand.

39.  In a case where the appellant really succeeds but on the basis of a new point or ground raised after the hearing before the Master, the appellant may have to bear the costs of the appeal.  In the present case, I would not say the financial ability of GSI or D’Oliveira is a new ground.  Yet in view of why I allowed the appeal to the extent I did, it was really this court’s indulgence, on the basis of the new evidence, in releasing GSI from part of the condition imposed by the Master.  Considering all the circumstances, I accept the argument for BCM that it is only fair for BCM to have the costs of this appeal.  I so order.  Costs shall be taxed, if not agreed, with certificate for counsel.

Representation: