Ming Hsieh v. Xu Zhe and Others

CACV 235/2017

[2018] HKCA 390

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 235 OF 2017

(ON APPEAL FROM HCMP NO 3072 OF 2014)

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Before: Hon Lam VP and Kwan JA

Dates of Written Submissions: 10, 17 and 24 April 2018

Date of Judgment: 13 July 2018

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J U D G M E N T

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Hon Kwan JA (giving the judgment of the court):

1.This is an application for stay of execution pending appeal of a judgment for the award of damages in the sum of HK$3,508,600 with interest and costs[1], given by Lok J on 22 September 2017. The application was made under Order 59 rule 13(1) of the Rules of the High Court. The plaintiff has applied to the judge for stay pending appeal of his judgment but this was dismissed by him on 26 February 2018. The plaintiff’s appeal is due to be heard on 22 November 2018.

2.The plaintiff’s summons to this court was issued on 6 March 2018, supported by an affidavit made by his solicitor, in which additional evidence was adduced.  The defendants have filed evidence in opposition and the plaintiff has filed evidence in reply.

3.The plaintiff sought an oral hearing of this application in the supporting affidavit of his solicitor and by letter dated 9 March 2018, on the basis that “oral submissions will be useful for both the legal issues in relation to the merits of the appeal as well as the factual circumstances surrounding the risk of the appeal being rendered nugatory”. This is opposed by the defendants, but they too sought an oral hearing “if the Court is not minded to grant an order in favour of [the defendants] on paper”.

4.In accordance with Practice Direction 4.1 §36(12), we have considered the papers and the submissions to determine if an oral hearing should be held.  We are firmly of the view that an oral hearing is not warranted.  The application is a simple one.  There is no difficulty about the law or the facts.  We bear in mind the underlying objectives to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings and to ensure that the resources of the Court are distributed fairly.  In the present circumstances, it would not be conducive to the promotion of these objectives for time to be allocated for an oral hearing and for additional costs to be incurred.  We therefore determine this application on paper.

5.The award of damages was made by Lok J in the context of the 1^st and 2^nd defendants’ enforcement of the plaintiff’s undertaking as to damages after the discharge of a Mareva injunction by the Court of Appeal (Lam VP and Barma JA) in CACV 189/2015 on 3 June 2016.  We do not propose to recite the background matters, which were summarised in the reasons for judgment of the Court of Appeal on 28 September 2016 at §§4 and 5, and the decision of Lok J on 22 September 2017 at §§2 to 10.

6.Ms Linda Chan, SC[2] submitted there are these good reasons to grant a stay of execution pending appeal:

(1)  there are strong merits in the appeal[3];

(2)  without a stay, the plaintiff’s appeal would be rendered nugatory as there is an appreciable risk that the 1^st and 2^nd defendants[4] would not be able to repay the amount received; and

(3)  there is no prejudice to the 1^st and 2^nd defendants, given the US$1 million paid by the plaintiff into court as fortification of the Mareva injunction[5] is more than sufficient to cover the damages and costs awarded to them.

Merits of the appeal

7.In awarding damages to the 1^st and 2^nd defendants, Lok J applied the statements of principle of Lord Clarke NPJ in MGA Entertainment Inc v Toys & Trends (Hong Kong) Ltd (2014) 17 HKCFAR 27 at §§16 to 19.  As the judge noted in his subsequent decision of 26 February 2018, there are not many decided cases on the circumstances as to how the court should assess damages after the discharge of a Mareva injunction and there is still some room for argument as to precisely how the statements of principle of Lord Clarke should be applied in practice.  Hence, he is satisfied there is an arguable appeal.

8.Five broad grounds are raised in the notice of appeal: there is no evidence of actual damage caused by the injunction (grounds 1 and 2); there is no basis to hold there was loss of opportunities to sell the shares caught by the injunction (ground 3); the 2^nd defendant had failed to mitigate her loss (ground 4); and the period for assessing loss is erroneous (ground 5).  Ms Chan contended there are strong merits in the appeal.  Mr Victor Dawes, SC[6] argued to the contrary that the grounds of appeal do not have a reasonable prospect of success.

9.We do not propose to set out their arguments.  This is not a dry run of the appeal.  It is well established that for the purpose of this application, the court only needs to form a preliminary view on the merits.  It would be impractical and even undesirable for the court to go deeply into the strengths of the appeal and it should refrain from embarking upon detailed discussion and analysis of the grounds of appeal[7].

10.For the grounds of appeal to be regarded as very strong such that the existence of these grounds by themselves would constitute a good reason for stay of execution, it is well established that the requisite strength must be such that the court takes the view that “something has grievously gone wrong with the process of law in the court below”, or in other words, the appellant is “almost bound to succeed” in the appeal.  If all that can be demonstrated is that the appeal is arguable or even that good arguments exist, something more needs to be shown by the appellant to obtain a stay of execution[8].

11.The grounds of appeal in this instance plainly do not reach that level of requisite strength.  We agree with the judge this appeal is arguable.  The minimum requirement for considering whether a stay should be granted is met, but additional reasons would need to be provided by the plaintiff why a stay is justified.

If the appeal would be rendered nugatory

12.This appeal is against an award of damages of HK$3.5 million odd.  The long established practice is that a stay will only be granted if the appellant can satisfy the court that if the judgment sum is paid, there is no reasonable prospect of recovering it in the event of the appeal succeeding[9].

13.The judge was satisfied there is only a “negligible risk” the appeal would be rendered nugatory should there be no stay.  He came to this view for the following reasons.

14.The 1^st and 2^nd defendants (who have been detained in the Mainland for criminal investigation for an alleged fraud related to the subject matter of this action) gave an undertaking to the court not to dispose of a valuable duplex property in Kennedy Road Hong Kong (“the Property”) registered in the 2^nd defendant’s name worth about HK$150 million in 2011 without providing 30 days’ prior written notice to the plaintiff’s solicitors of their intention to do so.  The Property was mortgaged to HSBC for a loan of HK$68.5 million in May 2014.  The amount involved in the judgment is only about HK$3.5 million, which is not a substantial sum compared with the value of the Property.  Further, the plaintiff owes the 1^st and 2^nd defendants over HK$4 million taxed costs in March 2018 in respect of the application for discharge of the injunction and the related appeal[10].

15.In light of the above matters, the judge took the view that even if the 1^st and 2^nd defendants are persons of low commercial morality, as contended by the plaintiff, the risk of the defendants in not honouring the undertaking or to run away after the appeal is “extremely small”.

16.In the renewed application, the plaintiff relied on additional evidence (status report submitted by the defendants’ attorney in US proceedings dated 25 July 2017; report of the Shenzhen Municipal Public Security Bureau dated 17 October 2017 on their investigation against the 1^st and 2^nd defendants with a view to prosecution) to further bolster the contention that the 1^st and 2^nd defendants are of low commercial morality.  It was mentioned in the latter report there is another individual who had been defrauded by the 1^st and 2^nd defendants and the 1^st defendant’s mother to the tune of RMB 65 million.  The plaintiff’s solicitor also adduced a news article to the effect that there were other victims of the scam.

17.Ms Chan submitted the findings of the Public Security Bureau on the fraudulent conduct of the 1^st and 2^nd defendants alone is sufficient for the court to hold there is a risk of dissipation of assets by them, on account of these matters: their low commercial reality; there is a grave risk that other victims would look to their assets to satisfy their claims; and the likelihood that their assets in the PRC would be confiscated by the authorities upon a conviction of the criminal charges that would be laid against them.

18.She emphasised the plaintiff has a very strong case of US$54 million (equivalent to RMB 350 million at the time) against the defendants, which far exceeds the remaining value of the Property at HK$82.34 million.  And although the 1^st and 2^nd defendants have disclosed assets in Hong Kong (pursuant to the Mareva injunction) with a combined value of around HK$200 million (which included other landed properties), those assets are much less than the RMB 350 million they defrauded the plaintiff of.  Even taking into account the taxed costs awarded in favour of the defendants, the plaintiff’s maximum liability to them is less than HK$8 million, only around less than 2% of the plaintiff’s claim of over HK$400 million.

19.For good measure, Ms Chan pointed to the preliminary views expressed by the judge in his exchanges with the plaintiff’s junior counsel at the hearing for stay of execution that the undertaking not to dispose of the Property “is not enough” and he would give the plaintiff “adequate protection”.

20.We are not persuaded by Ms Chan’s submission.  We agree with the judge on his assessment that the risk of the appeal being rendered nugatory is negligible for the reasons he gave.  We would add these observations.

21.The amount the court is concerned with in this application is the damages awarded to the defendants at HK$3.5 million for enforcement of the undertaking as to damages and whether there is reasonable prospect of recovering this sum from the defendants if no stay is granted.  The remaining value of the Property and the taxed costs are well above this amount. Ms Chan kept harping on the RMB 350 million that the defendants defrauded the plaintiff of, being the subject of the claim in the action.  This is not relevant for the present exercise.

22.As submitted by Mr Dawes, given the extent of the defendants’ wealth, their known assets in Hong Kong, and the scale of the disputes, the suggestion that they will devise a plan to dissipate their assets in breach of their undertaking to the court just to avoid paying HK$3.5 million if the appeal should go against them does not seem to be realistic.

23.Whatever views expressed by the judge in the course of his exchange with the plaintiff’s counsel, before he heard submissions from the defendants, are, as the judge said, preliminary.  These views must give way to the views of the judge in his decision, which are made upon deliberation after considering the submissions on both sides.

24.As for potential claims that might be made by others who were allegedly defrauded, we are not inclined to attach any significant weight to this.  No evidence has been adduced by any of these parties, nor has any legal claim been made by any of them.

If there is prejudice to the defendants

25.Ms Chan relied on the fortification money of US$1 million, which has remained in court, to contend that no prejudice would be suffered by the defendants as this would be sufficient to cover the judgment sum of HK$3.5 million, interest and costs.

26.This is beside the point.  The starting point is that the successful party is not to be deprived of the fruits of his success, and the burden is on the applicant to justify and show “good reasons” why a stay should be granted.

27.We do not think the plaintiff has discharged this burden.  We therefore dismiss his application for stay pending appeal.

Costs

28.There is no reason why costs should not follow the event.  This is a renewed application after the plaintiff had applied to the judge and failed.  We order the plaintiff to pay the defendants’ costs of this application.

29.The 1^st and 2^nd defendants have submitted a statement of costs for summary assessment in the total sum of HK$150,115.  We think the amount is reasonable and no deduction will be made.

30.The costs order and gross sum assessment are orders nisi.  Any party may apply for variation within 14 days of the handing down of this judgment.

Written submissions by Ms Linda Chan SC and Ms Elizabeth Cheung, instructed by Eversheds Sutherland, for the Plaintiff (Appellant)

Written submissions by Mr Victor Dawes SC and Mr Thomas Wong, instructed by DLA Piper Hong Kong, for the 1^st and 2^nd Defendants (Respondents)