WONG SEE LUNG v. WONG SEE LUNG AND OTHERS

HCA 2067/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2067 OF 2009

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D E C I S I O N
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Application

1. I have before me an application by the 2nd defendant by summons dated 31 December 2014 seeking a stay of execution of the judgment of Mr Recorder Pow SC dated 1st September 2014 (“the Judgment”) pending the determination of its appeal against the Judgment to the Court of Appeal, and a like application by the 3rd and 4th defendants by summons dated 5 January 2015.

The judgement

2. The background facts of this case are set out in the Judgment and it is not necessary to repeat them in this decision.  The following brief summary should suffice for the present purpose.

3. The plaintiff was formerly the registered owner of a property known as Flat C on the 51st and 52nd Floors of Tower 8, Park Avenue, Kowloon (“the Property”).

4. By an assignment dated 3 January 2006, the Property was purportedly transferred by the plaintiff to the 2nd defendant for the consideration of HK$20,000,000.

5. Subsequently, the 2nd defendant executed a first legal charge dated 10 July 2007 (“the Chong Hing Legal Charge”) over the Property in favour of Chong Hing Bank Limited as security for a loan of HIK$12 million, and a second mortgage also dated 10 July 2007 (“the July Second Mortgage”) in favour of the 4th defendant (a registered money lender carrying on business in Hong Kong) as security for certain indebtedness owed by the 2nd defendant to the 4th defendant.

6. Notwithstanding the purported assignment of the Property to the 2nd defendant, the plaintiff and his family members were allowed to continue to reside in the Property, which the plaintiff thought was in accordance with the agreement that he had reached with the 1st defendant (then being a director and the majority shareholder of the 2nd defendant) in relation to a proposed sale of the Property to the 1st defendant (to be conveyed to the 2nd defendant, but on terms which were different from those contained in the aforesaid assignment).

7. In 2009, the 2nd defendant commenced proceedings in HCA 1550/2009 against the plaintiff seeking possession of the Property.  It is not necessary to set out in detail the subsequent course of those proceedings, save to mention that initially the 2nd defendant obtained default judgment against the plaintiff on 21 September 2009 which judgment was later set aside by the court on 19 April 2010.  According to the plaintiff, it was as a result of the default judgment that he discovered the fraud which had been practised on him and which led to the institution of these proceedings against the defendants.

8. Subsequent to the commencement of these proceedings, Chong Hing Bank issued an originating summons in HCMP 2112/2010 on 25 October 2010 against the 2nd defendant seeking repayment of all monies due under the Chong Hing Legal Charge and vacant possession of the Property.  The plaintiff and his ex-wife were later joined as interested parties to that action.  Eventually, Chong Hing Bank obtained an order for vacant possession of the Property, and sold the Property for HK$32,500,000.  The balance of the sale proceeds, after deducting the monies due to Chong Hing Bank under the Chong Hing Legal Charge (including incidental costs and expenses), was in the sum of HK$18,919,721.81 which was paid into court on 23 October 2013 and currently still remains in court.

9. After a contested trial of this action lasting some 8 days, the Recorder gave the Judgment in which he found (inter alia) the following:-

(1) The plaintiff executed the assignment (and other documents) as a result of, and in reliance upon, certain fraudulent misrepresentations made by the 3^rd defendant regarding the nature and/or terms of the documents to be executed by the plaintiff.

(2) The 3^rd defendant, being the person in control of the 4^th defendant, made those representations in his capacity as agent of the 4^th defendant.

(3) The 3^rd and 4^th defendants made those representations knowing that they were false or misleading and that the plaintiff would rely on them.

10. The Recorder held that the 3^rd and 4^th defendants were liable to the plaintiff for damages for misrepresentation, and that the loss suffered by the plaintiff was the amount of HK$22,000,000, being the price which the plaintiff was prepared to sell the Property to the 1^st defendant back in December 2006 and having regard to the fact that the plaintiff had not received any consideration for the assignment of the Property to the 2nd defendant.  Taking into account the sum of HK$18,919,721.81 remaining in court in HCMP 2112/2010 which the Recorder considered ought to be paid out to the plaintiff (as to which see further below), the Recorder ordered the 3^rd and 4^th defendants to pay the difference between HK$22,000,000 and HK$18,919,721.81 as damages to the plaintiff with interest.  The Recorder also held that the July Second Mortgage was null and void as against the plaintiff.

11. In relation to the 2^nd defendant, the Recorder held that it obtained a conveyance of the Property without paying the purchase price which was made possible only because of the misrepresentations made by the 3^rd and 4^th defendants.  Accordingly, although the 2^nd defendant could not be said to have been a party to the misrepresentations, as it had provided no consideration for the conveyance, it held the Property on a resulting trust for the plaintiff.  The balance of the sale proceeds in the sum of HK$18,919,721.81 paid into court by Chong Hing Bank was likewise to be treated as being held on trust for the plaintiff.  The Recorder made a declaration that the plaintiff was entitled to the monies in court in HCMP 2112/2010 together with the interest accrued thereon (if any).

12. For the sake of completeness, I should mention that, as recorded in paragraph 30 of the Judgment, default judgment has also been entered against the 1^st defendant.

Merits of the appeals

13. The principles governing an application for a stay of execution of a judgment pending appeal are well established.  The applicant is required to demonstrate a “good reason” for a stay of execution. 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.  In other words, if the court is not convinced that there exist arguable grounds of appeal, no appeal will be granted however exceptional the circumstances may otherwise be justifying a stay of execution.  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.  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.  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.  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.  For the above principles, see the judgment of Ma J (as he then was) in Stay Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84.

14. In relation to the 2^nd defendant’s appeal, its grounds of appeal are set out in a supplementary notice of appeal dated 5 February 2015.  Although a number of grounds of appeal have been raised in that document, as I understand from the written skeleton submission of Mr Chan Pat Lun (counsel for the 2^nd defendant) dated 3 February 2015 as supplemented by his oral submission to the court, the 2^nd defendant’s main complaint is that the Recorder was wrong to take the view that the 2^nd defendant did not pay the purchase price or gave no consideration for the conveyance of the Property.

15. First, Mr Chan Pat Lun referred to 3 post-dated cheques issued by the 1^st defendant to the plaintiff in 2007 referred to in paragraph 16 of the Judgment.  However, as mentioned in that paragraph of the Judgment, it appears that the 1^st defendant issued the 3 cheques to the plaintiff “to show his sincerity” and asked the plaintiff not to present them for payment “until he [the plaintiff] received notification from the 1^st defendant”.  Apparently, the 1^st defendant repeatedly told the plaintiff that his cash flow condition had not improved, and the plaintiff never presented the 3 cheques for payment.  In these circumstances, I am unable to see how the issue of the 3 post-dated cheques by the 1^st defendant to the plaintiff can be regarded as payment of any consideration by the 2^nd defendant.

16. Mr Chan Pat Lun next argued that the 1^st defendant “did in fact partly transfer some consideration to the Plaintiff by redeeming the existing mortgage (by discharging the Bank of China mortgage debt of c.HK$532,194.50 plus legal fees – thereby redeeming the mortgage)”: see paragraph 9 of his written skeleton submission.  However, the redeeming of the mortgage by the 1^st defendant was not done pursuant to any agreement reached between the plaintiff and the 1^st and/or 2^nd defendants, or upon the plaintiff’s request (on the facts as found by the Recorder).

17. Lastly, in his oral submission, Mr Chan Pat Lun referred to the audited financial statement of the 2^nd defendant for the year ended 31 December 2007 which stated, inter alia, that the amount of the loan to the 1^st defendant as at 31 December 2006 was HK$6,697,400 and the amount of the loan to the 1^st defendant as at 31 December 2007 was zero.  This suggests that the 1^st defendant repaid the loan of HK$6,697,400 due to the 2^nd defendant in the course of 2007.  I cannot see, however, how the repayment of the loan can begin to show that the 2^nd defendant paid any purchase price to the plaintiff for obtaining a conveyance of the Property.  Further, Mr Chan Pat Lun accepted that this argument was never raised before the Recorder at the trial.

18. In so far as the appeal of the 3^rd and 4^th defendants are concerned, their grounds of appeal are set out in a notice of appeal dated 29 September 2014.  In paragraph 3.1 of his written skeleton argument dated 3 February 2015, Mr Barrie Barlow QC (for the 3^rd and 4^th defendants) stated that their notice of appeal disclosed that each had a “strong appeal”, but the grounds of appeal were not further developed in that skeleton argument although they were briefly dealt with in Mr Barlow’s Reply Points dated 5 February 2015.  In paragraph 3.3, Mr Barlow further stated that the 3^rd and 4^th defendants relied upon the “inevitability of success in D2’s appeal”.

19. In his oral submission, the focus of Mr Barlow’s argument was that the Recorder found against the 3^rd and 4^th defendants based on an “unpleaded fraud case”, and he pointed to paragraph 29 of the Judgment where the Recorder stated that “[a]t the start of the trial, counsel for the plaintiff restructured the plaintiff’s claims as follows …” in support of this argument.

20. From my reading of the Amended Statement of Claim and the Judgment, it seems to me that the case as found by the Recorder in the Judgment was largely the same as the case that was advanced by the plaintiff on the pleadings.  Also, the so called “restructured” claims appear to me to relate only to the relief sought by the plaintiff at the trial having regard to the fact that many of the remedies sought in the Amended Statement of Claim were no longer appropriate in light of the sale of the Property by Chong Hing Bank by the time of the trial.  Further, the remedies sought by the plaintiff as stated in paragraph 29(1) to (6) of the Judgment were already contained in the prayer for relief in the Amended Statement of Claim.

21. For the above reasons, I am not satisfied, based on my preliminary assessment on the merits, that the 2^nd and 3^rd/4^th defendants have an “arguable” appeal, still less a “strong” appeal.

22. I should mention that the above preliminary assessment is based on the main points developed by counsel in their oral submissions, but not on any detailed examination of the other grounds of appeal as set out in the respective notices of appeal of the 2^nd and 3^rd/4^th defendants.  I take it that counsel had orally put forward their strongest or best points in support of the stay applications.

23. In this connection, I should also mention that the 2^nd defendant’s summons gave an estimated length of hearing of 1 hour, whereas the 3^rd and 4^th defendants’ summons gave an estimate length of hearing of 30 minutes.  Nevertheless, the two summonses were fixed for hearing at 9:30 am on 6 February 2015 on which date I was engaged in the fourth day of a trial.  At the commencement of the hearing of the two summonses, I raised with counsel the question of the time which counsel would require to make their submissions and whether there was sufficient time for counsel to do so.  I was informed, however, by counsel that they had agreed amongst themselves that each would take 10 minutes to make oral submission.  I told counsel that, in those circumstances, the assistance that would be rendered to the court would be limited, but counsel appeared to be keen to proceed with the hearing.  In view of the fact that the parties were all represented by experienced counsel, I decided to proceed in the manner as agreed by counsel.  In actual fact, although the hearing eventually lasted a little over 30 minutes, the submission that counsel for each party made was very brief and sketchy.  These having been said, I do not consider that it is the duty of the court to go through those grounds of appeal which counsel did not, for any reason, deem it necessary to develop orally (however briefly) in support of the stay applications.  In any event, for the reasons appearing below, I would dismiss the stay applications even if I were of the view that the 2^nd and 3^rd/4^th defendants have demonstrated an arguable appeal.

Whether any risk of appeal being rendered nugatory?

24. Both Mr Chan Pat Lun and Mr Barlow relied on what the plaintiff said in paragraph 9 of his 5^th affirmation filed to oppose the present applications to contend that there is a good reason to believe, or a risk, that should the appeals of the 2^nd and 3^rd/4^th defendants be successful, the plaintiff may not be able to repay the monies in court which the Recorder considered ought to be paid out to the plaintiff.

25. In that paragraph, the plaintiff states that he is currently actively engaged in a partnership business relating to the import of seafood for distribution to the whole of Mainland China.  The weekly turnover is high (“frequently over million [sic] of HK dollars and RMB”). He further states as follows:-

“ We need to pay cash either in advance or upon delivery, especially for the flight charges and the suppliers of the live seafood. They would not accept credit or grace period for deferred payment, all cash on delivery. On the other hand, for business efficacy, we need to give the buyers of the live seafood credit or grace period for payment for period of one month or so. As such, I am always in need of funds to run the day-to-day business and to make continuous investment in the said business and other businesses of my own. The cashflow situation is aggravated if the account receivable to them are not so punctual in their payment of the amount due. It is just that the generosity of my business partners to cover me from time to time and defer the finalization of account or rigidly forced contribution from me in time of dire cashflow that we could keep the business going on.”

26. As I see it, what the plaintiff has described is quite unexceptional for a trader who is required to pay his suppliers in cash on delivery of goods purchased and who gives his customers credit or grace periods for payment of goods sold.  While this may create temporary cash flow difficulties, there is no suggestion that the plaintiff’s customers are not creditworthy.

27. Mr Pang Yiu Kwong (the 3^rd and 4^th defendants’ solicitor) has also asserted that the plaintiff “is retired with various questionable investments in Mainland China” (see paragraph 8 of his affirmation filed on 5 January 2015).  I have not, however, been shown any evidence in support of this assertion.  Both Mr Chan Pat Lun and Mr Barlow also made the point that the monies remaining in court are held on trust for either the plaintiff or the 2^nd defendant (depending on the correctness of the Recorder’s Judgment), but I do not see that this fact has any bearing on the question of whether a stay of execution ought to be granted.

28. In all, I do not consider that a sufficient foundation has been made out for the contention that there is a good reason to believe, or a risk, that the plaintiff would not be able to repay the monies should the appeals of the 2^nd and 3^rd/4^th defendants be successful.

Disposition

29. As earlier mentioned, I am not satisfied that the 2^nd and 3^rd/4^th defendants have demonstrated an arguable appeal against the Judgment.  In any event, even if that has been demonstrated, I am not satisfied on the existing materials that the appeal would be rendered nugatory without a stay.  I do not consider that a good reason has been shown for a stay of execution.  I therefore dismiss the stay applications with costs to the plaintiff, to be taxed if not agreed.