BANK OF CHINA (HONG KONG) LTD v. TWIN PROFIT LTD AND OTHERS

HCMP874/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 874 OF 2009

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DECISION

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Introduction

1.  On 30 March 2010 I handed down judgment dismissing the defendants’ appeal against the order of Master de Souza dated 25 January 2010.

2.  By a notice of appeal dated 26 April 2010 the defendants have given notice that they intend to appeal against my judgment.  The appeal lies as of right.  I am informed that the appeal has been fixed to be heard on 19 November 2010.

3.  By a summons dated 10 August 2010 the defendants seek an order to stay the execution of the judgment dated 30 March 2010 until the determination of the appeal by the defendant against the judgment.

The basis of the application

4.  The application for a stay is supported by the fourth affirmation of Mr Mok Wei Tak, a director of each of the defendants, filed on 10 August 2010.  In that affirmation, Mr Mok sets out the background to the appeal, which includes the fact that the plaintiff’s action was commenced by originating summons seeking delivery of vacant possession of various mortgaged properties and payments of sums due together with interest and costs.  At the hearing before him, Master de Souza dismissed the defendants’ application for an order that the proceedings be continued as if begun by writ and ordered that, amongst other things, the defendants pay the plaintiff the total sum of HK$265,840,469.02 and interest and made orders against the 2^nd and 5^th defendants for delivery of vacant possession of various charged properties to the plaintiff.  Since the date of my judgment, the plaintiff has issued a writ of possession and fi fa combined dated 23 July 2010 requiring possession of the 2^nd Charged Property and 3^rd Charged Property and a notice to the occupier has been issued to the respective occupants of those properties.

5.  There are, in effect, two grounds advanced in support of the stay of execution.

6.  First, it is contended that, in the absence of a stay of execution, the appeal would be rendered nugatory.  Mr Mok contends that in the absence of a stay of execution order, the Court Bailiffs would on the basis of the plaintiff’s writ of possession and fi fa proceed with obtaining vacant possession of the Charged Properties, which would likely be completed by the end of this month.  In paragraph 11 of his affirmation, Mr Mok states :

“The Defendants understand and appreciate that the Appeal does not operate as a stay of execution on the Judgment. However, I have been advised by the Defendants’ solicitors and verily believe that if a stay of execution is not granted, any appeal if successful would be rendered nugatory and ineffectual as the Plaintiff will have obtained possession (and possibly sold or sub-letted [sic]) the 2nd and 3rd Charged Property before the Appeal is even heard.”

7.  Secondly, it is contended that the grounds of appeal set out in the Notice of Appeal are meritorious and there is a good prospect that the Court of Appeal will find in favour of the defendants (see §13 of Mr Mok’s affirmation).

The relevant principles

8.  The applicable principles governing the exercise of the court’s discretion whether to grant a stay of execution pending appeal are set out in the decision of Ma J (as he then was) in Star Play Development Limited v Bess Fashion Management Company Limited, unrep., HCA4726/2001, 7 June 2002, at §§6 to 10.

9.  In summary, it is for the defendant to justify a stay of execution by demonstrating good reasons for the stay.  There is no exhaustive definition of what would constitute good reasons, although commonly reference is made to the possibility of the appeal being rendered nugatory without a stay or to the merits of the appeal.  When considering the possibility of an appeal being rendered nugatory without a stay, it is necessary for the Court to have regard to the nature of the order that is the subject matter of the appeal.  As to the merits of the appeal, the Court should form a preliminary view of the merits and strengths of the appeal.  The existence of an at least arguable appeal is a minimum requirement for a stay.  The existence of a strong likelihood of success on appeal will usually constitute a good reason for a stay.  But where the appeal is merely arguable, some additional reason for a stay must be provided and this may be done by demonstrating that the appeal would be rendered nugatory if the stay were not granted.  It is also relevant to bear in mind any prejudice to the successful party from the grant of a stay. Ultimately, the Court embarks on a balancing exercise, bearing in mind the starting point that the successful party is not to be deprived of the fruits of his success.

10.  These principles were again applied by Ma J in Wenden Engineering Co. Ltd v Lee Shing Yue Construction Co. Ltd, unrep., HCCT90/1999, 17 July 2002 and I propose to apply those principles in the determination of this application.

The merits of the appeal

11.  Master de Souza entered judgment in favour of the plaintiff on the basis that the defendant did not have an arguable defence to the claim.  I affirmed that judgment on the basis that, likewise, I did not consider the defendant had shown the existence of an arguable defence.

12.  The arguments raised in the Notice of Appeal appear simply to rehearse the arguments that were advanced before me in support of the contention that there was an arguable defence to the claim.  In the circumstances, I do not consider that this is a case where the merits of the appeal are so strong that this in itself will constitute a good reason for a stay of execution.  Indeed, I think there is force in the submissions made on behalf of the plaintiff that the grounds of appeal are not arguable.  However, I am prepared to assume, for present purposes, that this appeal is an arguable appeal thereby satisfying the bare minimum requirement for a stay of execution.  It remains to determine if there is some additional reason for exercising my discretion to grant such a stay.

Will the appeal be rendered nugatory?

13.  As already noted, where the court is simply faced with the existence of an arguable appeal, it becomes necessary for the applicant to provide some additional reason as to why a stay is justified.  The applicant can do this by demonstrating that the appeal will be rendered nugatory in the event the stay is not granted.

14.  In considering whether the appeal will be rendered nugatory, it is relevant to consider the nature of the order that is the subject matter of the appeal.  Here, the judgment is one for the payment of a sum of money by the defendants to the plaintiff and also for the delivery up by the 2^nd and 5^th defendants to the plaintiff of vacant possession of various charged properties which stand as security.

15.  In the present case, Mr Mok suggests that, given the current state of affairs, it is likely that the plaintiff will have obtained possession and possibly sold or sub-let the 2^nd Charged Property and the 3^rd Charged Property before the date fixed for the hearing of the appeal on 19 November 2010.  I think this is a realistic contention given the issue of the writ of possession and fi fa dated 23 July 2010.

16.  However, in the present case, the enforcement of the orders for possession in the judgment appealed against will be avoided by the payment by the defendants to the plaintiff of the judgment sum.  Since there is no evidence before me as to the defendants’ inability to pay that sum, there is therefore a genuine question as to whether it is inevitable that the orders for possession will be carried into effect. If it is not inevitable that they will be carried into effect, it is not clear that the appeal will be rendered nugatory by the refusal of a stay.  In any event, the mere execution of the orders for possession will not render the appeal nugatory as a whole since the appeal is against the entirety of the judgment and not just against the orders for possession.

17.  It may be that the defendants’ contention is, in substance, that the levying of execution would result in financial ruin or serious financial consequences for them.  If so, the court will require good evidence to support a contention of this nature, such as the production of accounts or other documents to justify the assertion : see per Ma J in Star Play Development at §9(3) where he said :

“I now deal with a common facet relied on in any argument relating to an appeal being rendered nugatory, namely that of financial ruin or serious financial consequences. Where, as in the present case, it is said that 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 : see the observations of Mr Justice Litton, JA in World Trade Centre Group Limited v. Resourceful River Limited, unreported, 12 May 1993, Civil Appeal 70 of 1993, Court of Appeal, at 3‑4.”

Here, there is simply no explanation as to the financial status of the defendants and their ability or otherwise to pay the judgment sum.

18.  It is also submitted, on behalf of the defendants, that there would be little prejudice to the plaintiff in the event a stay of execution were granted.  The appeal has been fixed for hearing in less than three months’ time, on 19 November 2010.  Since the judgment in favour of the plaintiff is for a sum of money, any prejudice to the plaintiff from a short stay of execution of the judgment will be compensated by the interest that will continue to run in the meantime.  In this context, it was submitted on behalf of the defendants that the plaintiff appears to have waited for a number of years before proceeding on its claims against the defendants.  That, however, is not shown to be the case since the correspondence supports the plaintiff’s contrary submission that the defendants’ representatives had, until about June 2008, been requesting more time to pay the plaintiff and had expressed willingness to sell the Charged Properties for this purpose.  However, when the Charged Properties remained unsold for almost a further year, the plaintiff commenced these proceedings in May 2009.

19.  In those circumstances, I do not think there is any proper basis for the exercise of the Court’s discretion to stay the execution of the judgment so far as the payment of the judgment sum itself is concerned.

20.  On the other hand, I am prepared to accept that, so far as the charged properties which are the subject of the writ of possession and fi fa are concerned, the refusal of a stay would have a serious deleterious effect on the defendants.  I accept that it is likely that, if the plaintiff acquires vacant possession of the charged properties in question, then in all probability it will cause those properties to be sold in partial satisfaction of the judgment sum due.  Since the defendants’ appeal is, in part, against the correctness of the orders for possession of those properties as security for the judgment sum due, if the properties are sold before the appeal is heard and the appeal is subsequently successful, the appeal will have been in vain to that extent.

21.  Since it lies within my discretion to grant a stay of execution of part of the judgment and to do so on terms, I am prepared to grant a stay of execution of the orders for vacant possession of the 2^nd Charged Property and 3^rd Charged Property on terms that the defendants pay into court the sum of HK$100 million within 14 days. This figure is based on the fact that the charged properties which are the subject of the writ of possession and fi fa are valued at HK$162.5 million so that, if one assumes in favour of the defendants that execution of the writ of possession and fi fa will result in the plaintiff recovering that sum, it will leave a shortfall of approximately HK$100 million of the judgment sum unsatisfied.

22.  As to the costs of the defendants’ summons itself, those costs will be in the cause of the appeal.  However, as to the costs of today’s hearing, I note from the correspondence exhibited to the affirmation of the plaintiff’s solicitor, Mr Chong Moon Hing, that, following the issue of the defendants’ summons seeking a stay of execution on 10 August 2010, the plaintiff offered, by letter dated 19 August 2010, to consent to a stay of execution of the judgment provided the defendants agreed to furnish security for part of the judgment sum by making a payment into court in the sum of HK$100 forthwith.  Since the defendants have not, in substance, obtained more from the Court than was offered by the plaintiff, I consider that the costs of today’s hearing should be paid by the defendants to the plaintiff in any event, to be taxed if not agreed.