RE SKY TALENT PROPERTIES LTD

HCCW 892/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO. 892 OF 2003

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J U D G M E N T

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1. By this petition presented on 4 August 2003, Profit Rich Enterprises Limited ("the Petitioner") seeks a compulsory winding up order against Sky Talent Properties Limited ("the Company") on the grounds that the Company is unable to pay its debts. The petition is based on a judgment dated 11 June 2003, by which the Company was ordered to pay the Petitioner HK$6,520,000.00 together with interest on $9,630,000.00 at 1% over prime rate from 1 June 1998 to 29 October 1999, and on $6,520,000.00 at the same rate from 1 June 1998 until 11 June 2003, and thereafter at the judgment rate until payment. A statutory demand in respect of the amounts due under the judgment was served on 7 July 2003, but was not responded to.

2. The judgment arose from a claim by the Petitioner as vendor against the Company as purchaser for the Company's failure to complete a sale and purchase of a property known as 1058 Canton Road, in Kowloon. A provisional sale and purchase agreement was signed on 16 October 1997, for the sale of the property at a price of HK$19 million. A formal sale and purchase agreement was signed on 3 November 1997. Completion was not to take place until 30 May 1998 (subsequently, this was extended to 1 June 1998, as 30 May 1998 was a public holiday). On 26 May 1998, the Company's solicitors raised a number of requisitions as to title, in relation to what were said to be a total of six unauthorised structures at the property. These requisitions were well out of time, as requisitions were required under clause 13 of the Sale and Purchase Agreement to be raised within seven days of the receipt of the title deeds, which had been delivered to the Company's solicitors as early as 15 November 1997. The Petitioner did not answer the requisitions, and the Company claimed that in the absence of satisfactory answers, it was not bound to complete.

3. The trial judge, Nguyen J, held that the requisitions did not go to the root of the Petitioner's title, and that, even if they did, the Company could have discovered them by the exercise of due diligence, so that the Company was not entitled to escape the effect of the time limit for the raising of requisitions which had been imposed by the Sale and Purchase Agreement. Nguyen J rejected the Company's allegation that the estate agents involved in the transaction had represented, on behalf of the Petitioner, that the structures concerned had in fact been authorised by the Building Authority. He rejected other submissions put forward by the Company, and gave judgment in favour of the Petitioner for the losses which it had suffered as a result of the Company's wrongful failure to complete the transaction.

4. The Company has appealed against the judgment against it by a Notice of Appeal dated 30 June 2003. That appeal is to be heard on 5 February 2004. However, the Company has not paid the Petitioner the amounts which are due to the Petitioner under the judgment. Nor has it made any application for execution on the judgment to be stayed pending appeal.

5. It is well established that an appeal does not of itself operate as a stay of execution in relation to the judgment or order appealed against. Absent a stay of execution being ordered by the court, it is open to the successful party to take whatever steps are available to him to enforce the judgment. In the case of a judgment against a company, this includes the ability to petition for its winding up in the event that the judgment debt is not paid. That is the course which has been adopted by the Petitioner in this case.

6. Mr Lam, who appeared for the Company, accepted, I think, that I could, if I thought it right to do so, wind up the Company in these circumstances. However, he urged me to exercise my discretion to stay the winding up proceedings pending the hearing of the appeal.

7. It is quite clear that in the ordinary case, the fact that an appeal against a judgment is pending does not amount to grounds for declining to make a winding up order, where no stay of execution has been ordered. So much is clear from Re Amalgamated Properties of Rhodesia (1913) Limited [1917] 2 Ch 115 and Re Sky Finder Limited (unreported, High Court, Jones J, 24 February 1992). In the former case, Sargant J said (at p.121) of a submission that the petition should be dismissed that:-

"... The argument is such a bold one that it answers itself, for it really comes to this, that, if an unsuccessful litigant happens to be a limited company and intends to appeal, that litigant practically is discharged from the necessity which litigants are under in such a state of things, of applying to the Court of first instance or to the Court of Appeal to stay execution on the judgment ... In the first place, it seems to me that, even if a winding up order is made, the consequences are not such as the respondents endeavour to make out. It is common practice for companies in liquidation to pursue litigation, either by way of appeal or otherwise. ..."

and concluded (at p.123) that:-

"In my judgment, therefore, the petitioners are entitled as a matter of right to a winding up order, and, if I were not to make it, I should practically be doing what Eve J or the Court of Appeal ought to have been asked to do, if the respondents so desired, namely, to stay execution on the judgment pending the appeal."

8. In this case, no proper explanation has been put forward for the failure of the Company to apply, as it should have done, for a stay of execution had it wished to prevent the Petitioner from seeking to enforce the judgment against it. Mr Lam suggested that there was no need for such an application to have been made, since the Petitioner had not, prior to the taking out of the winding up proceedings made any attempt to enforce the judgment. I do not think that this is any answer to the point - so long as no stay of execution had been ordered, it remained open to the Petitioner to seek to enforce the judgment by any means at its disposal, including the presentation of a petition to wind up the Company. Moreover, it seems to me that it should have been apparent to the Company on receipt of the statutory demand served on it that the Petitioner was contemplating the presentation of a winding up petition against it. At that point, the Company could, and in my view should, have taken steps to seek a stay of execution. Even if had not done so at that stage, there was nothing to prevent it from seeking such a stay once the winding up petition had been served. I therefore reject the suggestion that the Petitioner has somehow acted unreasonably in simply presenting the petition rather than seeking to enforce the judgment by other means.

9. Mr Lam, however, went on to submit that I should exercise my discretion by in effect applying the same test as a court considering the question of whether or not to grant a stay of execution. He submitted that in this case a stay would have been granted, because:-

(1) the merits of the appeal by the Company were strong; and alternatively

(2) the appeal was well arguable, and would be rendered nugatory if I were not to stay the winding up proceedings.

He suggested that the petition was aimed at stifling the appeal, and that the Petitioner was well aware of the strength of the merits of the Company's appeal, relying on the Petitioner's filing of a Respondent's Notice in the appeal as an indication that the Petitioner perceived serious weaknesses in the judgment of the judge at first instance.

10. Mr Chow, who appeared for the Petitioner said that this was not the right approach, as a party seeking a stay of execution was obliged not just to satisfy the tests mentioned above, but also had to satisfy the court (at least in a case in which it could not be suggested that payment of the judgment to the successful party would render an appeal nugatory since it would be virtually impossible to recover such payment, as in Wilson v Church (No. 2) (1878) 12 Ch D 454) as to its financial position so as to demonstrate its inability to pay the judgment debt, and no attempt had been made to do this in the present case.

11. Although I can see some force in this point, it seems to me that if, on the material presented at the hearing of the winding up petition, the court is able to see, without going into the merits of the appeal in more than a preliminary way, that there are very strong prospects of the appeal succeeding, it may well be appropriate for the court to consider at least staying the winding up proceedings pending the outcome of the appeal. In the context of an application for a stay of execution, the level of strength required has been described as so strong as to suggest that "something has gone grievously wrong with the process of law in the court below" (see e.g. World Trade Centre Group Limited v Resourceful River Limited (unreported, CA, Litton JA, 12 May 1993), applied in Wenden Engineering Service Company Limited v Lee Shing Yue Construction Company Limited (unreported, CFI, Ma J, 17 July 2002)). I see no reason why the level of strength required in order to resist the making of a winding up order, where no stay of execution has been applied for, should be any lower.

12. I do not think, however, that the alternative basis on which a stay of execution may be granted (that the failure to stay execution would render the appeal nugatory) will generally provide a ground for the court to exercise its discretion against the making of a winding up order where it is said only (as in this case) that the making of a winding up order would hamper the appeal, since the making of such an order will not prevent the appeal from going ahead, it being open to the Official Receiver or other liquidator to prosecute the appeal if he feels that it is in the Company's interests to do so. This was recognised by Sargant J in the passage from his judgment in Re Amalgamated Properties of Rhodesia (1913) Limited which I have referred to above. I also bear in mind that it would, I think, be open to the Company's contributories (or indeed other creditors) to fund the appeal, putting up security for it if necessary, by indemnifying the liquidator against the costs involved in the appeal.

13. In this case, however, I am quite unable to see that the Company's appeal can be described as being one which is very strong, in the sense which I have described. The evidence filed in opposition to the petition simply refers to the grounds of appeal, and states that counsel's opinion was to the effect that there were "merits in appealing from the judgment", and that on the basis of the advice received, there were "reasonable prospects" or "real prospects" of success in the appeal. It seems to me that to say of an appeal that it has reasonable, or even real, prospects of success is very far from saying that the appeal is a very strong one. Even an appeal in which the prospects of success are only slightly better than fifty-fifty might fairly be said to be one in which there were reasonable prospects of success, but it could not be said to be one with very strong merits. Similarly, counsel's advice that there were merits in appealing from the judgment shows only that there are arguable grounds of appeal, which make it worth while to do so - again, this is well short of demonstrating very strong grounds for appealing, with a corresponding high likelihood of success.

14. The balance of the evidence in opposition to the petition consisted of a survey of the various points that it was proposed to argue on the appeal. At the hearing before me, however, Mr Lam focused his submissions on two grounds in particular.

15. The first was that the trial judge was clearly wrong in rejecting the Company's evidence to the effect that the estate agents, acting for the Petitioner, had represented to the Company that the unauthorised structures were in fact authorised. Mr Lam said that given that the only oral evidence given was that of a director of the Company, Mr Ng, who had testified that such representations had been made, there was no basis on which the trial judge could have rejected his evidence. Mr Lam suggested that the judge had erroneously thought that the failure of the Company to check for itself, which the judge thought it could easily have done, led him to reject the evidence of Mr Ng.

16. However, it seems to me that it is clear from his judgment that Nguyen J had considered all of the surrounding circumstances, including the fact that Mr Ng had said that from the outset he had noticed and been concerned about the structures in question, that despite numerous unsuccessful attempts which he said he had made fairly early on to arrange for inspections of the property, no inspection was in fact made or attempted until some six months later, in May 1998, shortly before completion was due to take place, and the important fact that when the Petitioner's solicitors expressed surprise at the failure to raise the requisitions earlier, Mr Ng did not tell the Company's solicitors to mention either of these matters in their response to the Petitioner's solicitors. The judge also had regard to the fact that there had been a significant fall in the property market as being a matter which might cast light on the Company's real motives in raising the requisitions when it did.

17. It is well established that a court is not bound to uncritically accept at face value any evidence which a witness may choose to give, simply because it is not contradicted by other oral evidence called by the opposing party. The court can, and should, assess the credibility of the evidence given against the other evidence given by the witness, and the documentary and other admissible evidence which is available to it. It is clear in this case that Nguyen J did just that in coming to the conclusion that Mr Ng's evidence as to the alleged representation should be rejected.

18. Thus, while I would not entirely rule out the possibility that the Company may be able to succeed on this point in its appeal, I am unable to say that it has very strong prospects of doing so.

19. The other argument which Mr Lam emphasised was to the effect that Nguyen J was mistaken in thinking that the structures could have been removed within a relatively short time, so that they would not constitute a defect going to the root of the Petitioner's title to the property, and could have been rectified had requisitions been raised in good time. Mr Lam submitted that in the case of some, at least, of the structures, they were such as would increase the area of premises leased to particular tenants, so that the tenants might have grounds to object to their removal, which might mean that they could not be so easily removed, and might amount to a defect going to the root of the Petitioner's title.

20. Mr Lam very properly accepted that this was not an argument which appeared to have been raised at the trial. Nor does it appear in the Company's Notice of Appeal. In my view, while it may, again, be an argument with some prospects, it is not one which I would consider suggests that something had gone grievously wrong at the trial.

21. I did not understand Mr Lam to suggest that any of the other grounds of appeal raised could be said to be of the requisite degree of strength to justify a stay. Having considered the judgment and the Notice of Appeal, I cannot say that they are.

22. So far as his reliance on the filing of a Respondent's Notice by the Petitioner is concerned, I am quite unable to see that this should in any way be regarded as a concession by the Petitioner as to the great strength of the appeal. If the Petitioner, as respondent to the appeal, wishes to contend that there are further grounds, not relied upon by the trial judge, on which the judge should have found in its favour, it is incumbent on the Petitioner to raise such grounds by way of a Respondent's Notice. By doing so, the Petitioner is merely keeping open all of the potential arguments available to it on the appeal. It is true that the Respondent's Notice will only need to be relied upon in the event that the grounds of appeal turn out to be well founded, but its filing does not in any way imply that this is, or will prove to be, the case, let alone that the grounds of appeal are very strong.

23. In the circumstances, therefore, it seems to me that the Company has failed to demonstrate any good grounds for me to exercise my discretion against making the winding up order to which the Petitioner is, on the face of it entitled, and I therefore consider that I should make the usual winding up order against the Company, with the usual order as to costs.